The Astonishing Reason Behind Wall Street Investors' Unprecedented Panic

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October has consistently been a month that brings fear to Wall Street, and this week's market activity is especially terrifying for traders.

Markets experienced a significant drop on Tuesday, with the Dow plunging by 454 points, or 1.3%. This decline is the largest since March and has resulted in the index turning negative for the year 2023.

CNN's Fear & Greed Index, which monitors seven market indicators, reached an incredibly low reading of 14, indicating "Extreme Fear". This level hasn't been seen since last October.

Investors are becoming increasingly anxious for two reasons: the commencement of bank earnings reports on Friday the 13th, and the initiation of the next Federal Reserve policy meeting on Halloween. As a result, this suspenseful period may extend considerably for the financial markets.

Corporate debt sales and increasing bond yields have caused a decline in stock prices. Stocks typically face challenges when government bond yields are high because investors can obtain significant returns from less risky investments.

Furthermore, better-than-anticipated job statistics have heightened concerns that the Federal Reserve will opt to maintain higher interest rates for an extended period. Mortgage rates are rapidly approaching 8% after reaching their highest point since 2000 in the previous week. Elevated interest rates have a tendency to reduce corporate profits and depress stock prices.

Government dysfunction exacerbates the volatility, as chaos ensues in the American Congress. The markets are still reeling from a narrowly averted federal government shutdown over the fiscal budget last weekend. Moreover, on Tuesday, House Republicans voted to remove Speaker Kevin McCarthy from his position due to his collaboration with Democrats to avoid the shutdown.

"The developments in the House today underline the challenging political environment in tackling these matters," expressed Michael Reinking, NYSE research manager.

Moody's, the sole leading credit rating agency that upholds a flawless score for the United States, has issued a cautionary statement declaring that a government shutdown would have an adverse impact on the country's credit standing. This scenario may be further exacerbated by additional political turmoil, potentially resulting in a downgrade.

Adding to the growing concerns, approximately 43 million Americans are slated to receive their initial student loan invoice since 2020 in the upcoming week, potentially impeding consumer expenditure.

Geopolitical risks remain high due to the ongoing conflict between Russia and Ukraine, as well as the tense relations between the United States and China. Additionally, oil prices continue to stay close to their highest point in over a year. However, amidst these challenges, some analysts believe that this downturn is largely influenced by seasonal factors.

The "October Effect": The autumnal month has been plagued by various significant stock market crashes. These include the infamous Black Tuesday in 1929, which triggered the Great Depression, Black Monday in 1987, and the initial stages of the 2008 financial crisis.

Additionally, October serves as the conclusion of the fiscal year for numerous mutual funds in the United States. As a result, some fund managers engage in a practice known as "window dressing," wherein they sell underperforming stocks and acquire more successful alternatives. This strategy aims to enhance the overall appearance of their portfolios.

The occurrence of these events has instilled fear in investors regarding the notorious "October Effect," which is believed to cause a decline in the stock market throughout the month. While statistical evidence does not entirely confirm this phenomenon, the prevailing superstitious caution among professionals on Wall Street is indeed tangible. This can ultimately result in a self-fulfilling prophecy, as heightened investor wariness or inclination to promptly sell off stocks at the slightest hint of volatility may potentially trigger downturns.

However, October has often been associated with significant declines in the market. Despite this, it is important to note that the month has also witnessed considerable recoveries and gains. When evaluating October's performance over an extended period, the data indicates that its overall performance is not as negative as its reputation may imply. Therefore, it is unfair to designate any specific month as the worst in terms of market performance.

Sam Bankman-Frieds trial has started. Heres what you need to know

According to Mark Twain's observations from as early as 1894, investing in stocks during certain months can be particularly risky. He identified October as one such month, alongside July, January, September, April, November, May, March, June, December, August, and February.

My colleague Allison Morrow, who is present at the trial, reported that the trial of Sam Bankman-Fried, a former crypto billionaire accused of masterminding a fraud worth billions of dollars, commenced on Tuesday in a federal court in Manhattan. The first day primarily involved the selection of the jury, while the opening arguments are scheduled for Wednesday.

Donning a suit and tie, the defendant, Bankman-Fried, entered the courtroom, his once disheveled hair neatly trimmed. Prior to the arrival of the potential jurors, Judge Lewis Kaplan directed his attention to the 31-year-old, known as SBF, emphasizing that the choice to testify rested entirely upon him, independent of his legal counsel.

"They cannot make that decision on your behalf. It is ultimately your decision... You must realize this," expressed Kaplan.

In the upcoming weeks, attorneys will debate two conflicting stories about the unraveling of FTX, Bankman-Fried's now insolvent cryptocurrency platform, which has left numerous customers uncertain and their deposits inaccessible.

SFB has entered a plea of not guilty to seven charges of fraud and conspiracy relating to the collapse of FTX, a seismic event that continues to impact the entire crypto industry.

Since his arrest in December, SBF has consistently asserted his innocence and has attempted to deflect responsibility onto other individuals within his business empire, including FTX's legal team, as well as his former business partner and intermittent ex-girlfriend, Caroline Ellison.

GM, Ford lay off 500 more workers, blaming strike

General Motors and Ford will be laying off an extra 500 employees collectively due to the recent escalation of the strike initiated by the United Auto Workers union. This news was reported by my colleagues, Chris Isidore and Vanessa Yurkevich. In response, GM has released a statement acknowledging that strikes are detrimental to all parties involved and pledges to negotiate in good faith to swiftly achieve a resolution with the union.

The company had previously terminated over 1,800 employees at its Fairfax assembly plant in Kansas City, Kansas, along with its Toledo engine plant and Lockport components factory in New York state. It has now laid off close to 2,000 workers across all five affected plants.

According to a statement from Ford, "Our production system is intricately linked, so the UAW's targeted strike strategy has ripple effects on facilities not directly subject to work stoppages." Previously, Ford had also let go of 600 hourly workers at the Michigan Assembly plant in Wayne, Michigan who were not participating in the strike.

Stellantis, the manufacturer of vehicles under brands like Jeep, Ram, Dodge, and Chrysler, has not announced any new layoffs. However, the UAW did not extend the strike to other Stellantis locations on Friday, as negotiations were showing progress. Previously, the UAW had laid off 350 members at the Toledo Machining plant, along with transmission and casting plants in Kokomo, Indiana. The UAW referred back to its previous statement expressing criticism of these layoffs.

"The unions firmly state that if the Big Three opt to dismiss non-striking individuals, it signifies their attempt to exert pressure on our members to accept lower terms. Considering their substantial profits, they are fully capable of retaining all their employees, without resorting to layoffs," declared the union. "Their strategy is destined to fail. The UAW is committed to ensuring that any worker affected by the Big Three's latest offensive will not suffer income loss."