Yesterday, the Nasdaq closed at fresh YTD lows and the S&P 500 closed essentially on YTD lows, as the selling over the last several trading days has been intense. Given this steep decline and the fact that the S&P 500 is teetering on important support, I wanted to step back and clearly explain: (1) Why stocks have dropped so sharply in less than a week, (2) What’s holding up best through this rout, (3) What makes this stop and (4) How bad it could get.

Why Have Stocks Dropped to YTD Lows? The S&P 500 has declined 7% in just five trading days, and if there is a singular reason “why,”...