In a sickening slide, the S&P 500 plunged to 837 in early October from 1277 on Sept. 2. “It looks like a market in virtual free fall,” says John Welsh, SVP of Peregrine Financial Group. And as it declines, it erodes buying power and confidence. “You destroyed lots and lots of wealth. This is a catch up of all the accumulated leverage that has been used since Sept. 11 and when the market crashed in 2002.” Despite the Fed having scooped up liabilities, which Welsh estimates at $6 trillion, he says the chance of a rebound is remote and we could test 800, the lows from 2002.
“As far as the volatility goes, you are seeing huge vacuums in the market,” says Scott Wallach, S&P pit broker at the CME Group. Many aging Americans are at the capitulation point, he says, torn between exiting the market and taking the tax hit or riding it out. He declined to pick levels. “We could cover the whole spectrum. You have hedge funds screaming for their money and major players still trying to hedge for this plan in case it works, and hedge for this plan in case that it doesn’t. And they can’t sell short. So they have to be in, in order to put on an offsetting position. I see huge volume flying around. But come November? Everyone is on pins and needles.”