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Mohamed A. El-Erian

How to Think About the Market Sell-Off

The Fed’s liquidity injections no longer underpin asset prices, leaving a greater role for fundamentals.

Back to basics.

Back to basics.

Photographer: Spencer Platt/Getty Images

The 3 percent to 4 percent plunge in the major American indexes on Wednesday is unsettling for investors who have grown accustomed to low U.S. market volatility in recent years. What’s more disturbing is that most of the traditional hedges against such a large equity sell-off, both within and across market segments, did not work well.

Yet neither of these developments should come as a great surprise given the following five factors that also point to what’s ahead: