The stock market closed on Monday with a discouraging decline. The Dow lost 1.48%, Nasdaq (QQQ) by 2.64%, and S&P 500 (IVV) by 1.76%. The small-cap index, through Russell 2000 (IWM) fell by 2.73%. Small-cap firms are most sensitive to a worsening economy.
The 2.5% drop is not yet a concern. Mainstream media will characterize it as a plunge. Yet investors who held the Nasdaq ETF are up by 14.19% in the last year. If the markets fall daily by over 2%, then investors may need to act defensively. They do not want to see all of their gains in the last year wiped out.
The technology sector is the most risky. Valuations in Amazon (AMZN) and Microsoft (MSFT) are high. Markets may lose confidence in their growth rates. That would cause the P/E multiple to shrink.
The electric vehicle market is an even higher risk. Tesla (TSLA) stock could have continued higher. Shares rose after the U.S. elections as shareholders bet on the company getting favorable regulatory relief. Instead, persistent tariff risks will hurt the automotive industry. It will not spare General Motors (GM) or Ford (F), either.
Car parts will rise this year, as will the price of new vehicles. In effect, the index may fall slightly but the auto and tech sectors have above-average downside risks.
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