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Bear Market Wall Street and investors. What does it mean? And how does it affect both Wall Street and Main Street? Adam Shell explains.

Thursday was a bad day for the broad U.S. markets. The Dow and the S & P 500 each dropped over 1.5% in the session, while the Nasdaq got away less than 1%. Crude oil posted another significant drop from $ 75 to $ 70. The S & P 500 sectors were entirely negative.(Photo: xijian / Getty Images)

In a span of six treacherous days on Wall Street, the mood of the stock market has been reduced to giddy optimism to gloomy pessimism.

Pinpointing major shifts in markets is an inexact science. But some of the Wall Street pros are more likely to have a higher point of view, the higher the rate of return.

A swift 1,776 point, or 6.6 percent, dive in the Dow Jones industrial average just a week after it hit a record high shows just how edgy and uncertain the investing environment has become.

Investors, who a week ago were talking to the market's prospects with a strengthening economy, are now noticing a worrisome shift in its behavior.

"Has the market hit an inflection point? I think it has," says Jim Paulsen, chief investment strategist at The Leuthold Group, at Minneapolis-based money-management firm.

This market downturn, he predicts, will be more severe than the 10.2 percent drop the market suffered in February. But it's still not enough on the idea that the break will lead to a bear market, or 20 percent drop from the market's recent high.

The debate about whether the marketplace has a role in the marketplace trade frictions with China; the recent drubbing of popular technology stocks; and higher high expectations that could lead to easy disappointment.

The Dow, which is still up 1.3 percent on the year, is trading at its lowest level since late July.

Some Wall Street pros, including Amanda Agati, co-chief investment strategist at PNC Financial Services Group, say the recent carnage on Wall Street was long overdue and is a "short-term blip" that will settle down quickly. She stresses that the U.S. economy and corporate profitability remains strong and the threat of recession is low. The mood of investors will brighten, she predicts, when companies start reporting their third-quarter results.

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"I think earnings will be very supportive and provide a support for the market and a positive catalyst," she says. The current downdraft has a different feel than the sell-off in February, she adds. That drop is caused by too many investors making a big bet on the stock market remaining calm, which backfired when volatility roared back, catching them on the wrong side of the trade.

Still, others worry that the market is entering into a more difficult phase.

So what changed in the past week that has investors so worried about the longest bull market in history?

Interest rate angst

The biggest change has been made by a U.S. economy and also put a dent in corporate earnings. The combination of the Federal Reserve and the Government of the United States, coupled with a spike in the 10-year U.S. government bond to a seven-year high has made less attractive stocks compared with lower-risk bonds.

Low rates and cheap money resulted in a flood of money in stocks in recent years.

But now financial conditions are getting tighter.

"Savita Subramanian, head of the U.S. equity strategy at Bank of America Merrill Lynch, says the wave of money is being reversed. "As liquidity is withdrawn from the market, it amplifies market volatility" and price swings.

Higher borrowing costs also make it difficult for Americans to afford houses and buy cars on credit, analysts say.

Trade war reality

The protectionist trade policies of President Donald Trump and his administration of tariffs with China have upended the long era of free trade. Tariffs also create greater uncertainty and inflationary pressures. That has unintended consequences, ranging from global supply chains for technology to higher costs for businesses.

"Hugh Johnson, chairman and chief investment officer at Hugh Johnson Advisors in Albany, New" The trade war is not longer than economics, we're now starting to see it is real-world stuff showing up in the earnings of companies. York.

He notes that you will be able to pay for your business costs.

Fading tech stocks

After years of leading the market, fast-growing and innovative tech companies like Netflix, Google parent Alphabet, and Apple have come under pressure in the recent sell-off, signaling that they are becoming more risk-averse .

"The sell-off has attacked the leadership of the market, and that's a significant change," says Paulsen. "These are the names of the most interesting people in the world where you are."

The tech stock drubbing, which has been driven by increasing fears of regulatory scrutiny from government amidst privacy breaches, shows "investors are getting a bit more defensive," Agati says.

Expectations are high … too high

Consumer confidence is at an 18-year high. And small-business optimism is at its highest level since 1983. And why not? The economy's 4.2 percent growth in the second quarter, and the nation's jobless rate is near a 50-year low of 3.7 percent.

The good times might be too high, which raises the risk that it will be good enough. "That's a higher-risk, lower-reward market," says Paulsen.

Indeed, all that confidence can lead to complacency and dangerous risk-taking that can lead to bad outcomes, he adds.

"Confidence reflects greed," Paulsen says. "It makes it easier for people to get along with their skis,"

"Subramanian of Bank of America, adding that it still expects the S & P 500 target on the S & P 500, or 10 percent higher than Thursday's close of 2728. She recommends investors moving their money into larger, high-quality stocks that are less dependent on borrowed money to grow.

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