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Mohamed A. El-Erian

Stock Selloff May Be Entering a New Phase

Worries about growth and earnings are joining concerns about higher interest rates and tightening financial conditions.

Stock prices remain vulnerable.

Stock prices remain vulnerable.

Photographer: Spencer Platt/Getty Images

This week’s move lower in stocks may not just be a simple continuation of what has already been a painful 2022 selloff for investors. Instead, there are signs that the selloff may have entered a new phase. In addition to deepening the year-to-date losses, this increases the possibility, though still not high probability, of a disruption in market functioning, which would have material spillbacks for the real economy.

The sharp selloff on Wednesday took the year-to-date losses of the S&P 500 Index to 17.7%, and those of the Dow Jones Industrial Average and the Nasdaq Composite Index to 13.3% and 27%, respectively. The initial drivers for these losses came from the financial side of the economy — that is, concerns about higher interest rates and more generally tightening financial conditions. Now there is growing evidence that, while these two influences have mostly played out, a new one is in the driver seat.