The calm on Wall Street has finally been punctured by a rare bout of selling.
The Dow dropped about 300 points on Tuesday, leaving the index down more than 400 points so far this week.
Although stocks are barely 2% away from all-time highs, back-to-back declines have been uncommon of late.
The S&P 500 could end its record streak without consecutive declines of 0.5%, according to Bespoke Investment Group.
One major concern for Wall Street: the bond market has been selling off lately. That’s raising fears that the era of extremely low bond rates could soon be over.
Health care stocks dragged the stock market lower on Tuesday after Jeff Bezos, Warren Buffett and Jamie Dimon unveiled a plan to get into the health insurance business. UnitedHealth fell 3%, CVS was off 5%, and Walgreens shed 3%.
The market selloff so far looks like relatively minor turbulence in a relentless climb. Market pullbacks are normal and even healthy. They prevent stocks from overheating and give investors stuck on the sideline an opportunity to get in.
“We are long, long overdue for a serious correction,” said David Kotok, co-founder of Cumberland Advisors. “Will this be the one that takes the market down 5% or 10% and scares the hell out of everyone? That would create a new psychological base.”
The Dow closed down 177 points Monday, its worst day since September.
If the Dow closes down by more than 100 points Tuesday, it will be the first time since April 19 and only the third time since the November 2016 election that the Dow has fallen triple digits two sessions in a row.
The Dow is up 8,000 points since President Trump’s election. A growing global economy, strong corporate earnings and a wave of consumer confidence are pushing stocks higher. Congress’ tax cuts and Trump’s deregulation agenda have investors and CEOs feeling optimistic.
There are still warning signs that the market could be entering a long-overdue pullback, which some analysts believe would be a healthy cool down.
The VIX, Wall Street’s fear gauge, hit its highest level since August on Monday.
The bond market is unnerving stock investors. On Monday, the 10-year Treasury yield climbed above 2.7% to the highest level in nearly four years. Yields move in the opposite direction of price.
While bond rates remain historically low, a rapid rise above 3% could spook Wall Street.
If trouble comes to the market, many analysts think it will start in bonds. If investors sell bonds, their interest rates will rise sharply from their current historic lows. And when investors can get better returns from bonds, risky stocks start to look less attractive.
“Markets are finally worried about higher interest rates,” said Kotok.
The Federal Reserve’s planned interest rate hikes could push higher yields. The Fed begins a two-day policy meeting in Washington Tuesday.
“We have become an asset price dependent economy and one addicted to artificially low rates,” Bleakley Advisory Group’s Peter Boockvar wrote in a note Tuesday.
Inflation fears could also lead to a selloff because investors’ 10-year Treasury notes wouldn’t be as valuable in the future.