The recent drop in the stock market represented by S&P 500 index can be attributed to several factors:

 

Profit Booking:

 

Investors have been cashing in on their gains after a period of significant market growth. This move to secure profits has led to a sell-off, contributing to the market decline. This could be the most obvious reason for the sudden drop. Investors are preparing for year end and going for vacation, thus closing their exposure to the market.

 

 

Broader Market Decline:

 

Despite tech stocks like Google-parent Alphabet and others such as Meta Platforms and Amazon saw increases. Alphabet, in particular, gained more than 2% and reached a new 52-week high the markets were collectively impacted by other not so good news. While tech and energy stocks were driving gains, FedEx, another major component of the broader index, saw a decline due to a disappointing revenue outlook and fiscal second-quarter results that fell short of expectations. Not just large-cap stocks, but also mid-cap and small-cap stocks have been affected. These segments had outperformed large-cap stocks in the past but are now experiencing a downturn.

 

Rise in Crude Oil Prices:

 

Increased crude oil prices, due to supply constraints and growing demand, are impacting economies, particularly those dependent on oil imports like India. This has led to increased inflation and economic uncertainty. Oil prices are further impacted by concerns in the Red Sea region.

 

Federal Reserve Policy Expectations:

 

Despite some Federal Reserve officials turning hawkish, the market remained upbeat on the rate cut expectations for 2024. This optimism contributed to the market’s rise, although it’s important to note that the Federal Reserve has indicated a more cautious approach to rate cuts than what the market anticipates

But despite the sudden drop, I would be cautious adjusting any trades or chasing the downside. It can be a shakeout or a trap. The market may close down today (which could be obvious after several days of a relentless rally, but in the next few days it can be going up again and any short positions can hurt you.