The Dow has lost 8 percent of its value since its all-time high on Oct. 3. The Nasdaq has been pushed into correction territory for the first time since February. The S&P 500 is now down on the year, wiping out hard-fought gains over the past 10 months.

So why the sudden volatility, especially when the economy is still doing so well?

A recent article by MarketWatch takes an in-depth look at October’s volatility, and there several factors behind October’s stock market bloodbath.

The Return of Volatility

After 2017 produced mega profits, complacency set in.

Market pragmatists and technicians say those days were statistical anomalies to start and have come to a natural conclusion. And October, an already seasonally volatile month, has delivered the clearest sign so far that the old quiescent regime is over.

Indeed, the S&P 500 has had 15 down days so far in October, representing the highest number of losing days for the broad-market benchmark since October of 2008 when it fell 16 days, according to Dow Jones Market Data. Another down day for the month and it will mark its highest number of down days since April of 1970.

A Breakdown in Support Levels

Difficulty finding support led to last Wednesday’s losses. With the market tanking, buyers didn’t step in to help stem the free fall.

And selling that had already eroded certain levels throughout the month in financial markets—like cutting away strands from a bridge of ropes—has made the markets more vulnerable to succumbing to subsequent downturns.

“The market selloff has taken on a life of its own and selling is begetting more selling, but so far we haven’t seen a capitulation moment, so I’m taking a more cautious approach,” said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance.

Earlier this year and last, investors stepped in to buy the dip, bolstering the market before it could falter. But that wasn’t the case in October.

The Fear Gauge

The Volatility Index, or fear gauge, closed at 24.16 after inching all the way up to 27.52. The measurement gained about 21 percent during the week with a massive jump on Wednesday.

The VIX tends to fall when stocks rise, and vice versa, because it measures how much traders will pay for protective options on the S&P 500 in the coming 30 days. A reading of 25 is well above the index’s normal average of around 20 and above its average this year. Moreover, the VIX has climbed 100% so far in October alone. That means investors have been steadily paying for protection from a coming market downturn.

However, that VIX level may not mean that the selling is done.

“Currently the VIX is around 25, which is elevated from where we were earlier this month and well above this year’s average, but it isn’t high enough for me to feel confident we’ve hit bottom in the S&P,” said Zaccarelli, referring to Wednesday’s climb to 25.

The source of all this stock-market angst is manifold. MarketWatch has previously outlined many reasons for worry but it bears repeating: The overarching theme is that investors are concerned about slowing growth here and abroad and the impact of tariff clashes between the U.S. and China.

  • Policy mistake by the Federal Reserve
  • Rising interest rates that could make borrowing more expensive
  • A slowdown in global economic growth exemplified in China weakness
  • An overall breakdown in stocks, represented in equities trading at multimonth lows
  • Midterm election jitters, which have seasonally resulted in some jitters in U.S. markets
  • Seasonal October volatility, which has tended to translate into choppy trade
  • Worries that the U.S. economy is in the late stages of its expansion and due for a recession
  • Brexit
  • Italy’s budget crisis
  • The looming end of quantitative easing in Europe
  • The political implications of the killing of dissident journalist Jamal Khashoggi
  • Worries about the health of emerging markets outside of China.
  • Signs from U.S. companies that they are see earnings growth slowing
  • U.S.-China trade relations which may be exacerbating Beijing’s economic malaise
  • Growing deficits partly derived from President Donald Trump’s corporate tax cuts in 2017
  • Weakness in the banking sector which hasn’t benefited from rising interest rates
  • Softness in transports which Dow theorists tend to follow as a gauge of the health of the market
  • A rotation of investors out of growth stocks and into those names viewed as value
  • Major cracks in the housing market
  • A weak earnings outlook

The Earnings Conundrum

Stock market problems last week came during stellar earnings calls, which reflected the strength of the economy. But even stellar earnings numbers punished Wall Street.

Of the 240 companies in the S&P 500 that have reported third-quarter results this year (as of Friday) 78.3% posted earnings per share that were above Wall Street expectations. That compares with an average of 64% of companies beating EPS expectations and 77% over the past four quarters, according to I/B/E/S data from Refinitiv.

Still, investors have been haunted by signs of stagnation with chip makers like Texas Instruments Inc. TXN, +0.18% notably projecting weaker-than-expected sales, citing the China trade spat.

There is worry that peak earnings may have already arrived for many companies.

Bull or Bear

Another big question investors are dying to know is whether we are now headed for a bear market, or was this just a correction like this past February? Some experts say we are still in a bull market and regard October’s massive selling as a correction.

“Right now I’m wracking my brain trying to figure out why my bottom-spotting indicators, normally very good, are not working right now. If this is a bear market, it would make sense because they can fail in a generally bearish environment,” wrote independent market analyst Stephen Todd in a Wednesday financial note. Todd concludes that the market may simply be oversold and that the fundamentals of the market remain intact.

Art Hogan, chief market strategist at B. Riley FBR Inc., said valuations remain attractive and the current downturn may amount to a garden-variety correction.

“Good news in my mind is valuations have become much more attractive here with the S&P 500 trading at about 15 times next year’s estimates,” Hogan said.

“Current earnings look great. The yield on the U.S. 10-year has settled down from its earlier explosive 20 basis point pop. Economic data continues to show no sign of a pending recession, and recessions are what kill bull markets. We are in a correction in a long-term bull, driven more by uncertainty over China and trade, than rising rates,” he said.