You’ve correctly noted a lot of the “reasons” for a downturn. Others include the fact that indexes are so easily bought, sold, shorted or even “ultra shorted” (2 or 3 times downward movement funds and ETF’s).
The craziest thing about it right now is how Goldilocks everything really is with the US economy. Low unemployment, high corporate profits, less regulation, low inflation, low energy costs, low borrowing costs and to top it off a record holiday buying season.
I don't think that's accurate.
ETF's are merely pools (unit trusts) which contain the stocks in proportion to their make-up of their subject indices. They (the ETF's) are squared up daily to stay in balance with the indices.
Issuers of the ETF's have no losses in truing up the ETF to the collective value of the underlying stocks except the costs of the trades and that cost is passed on as part of the management fee.
Same as to shorts.
"Ultra shorts" close out each day, so they are only a tool for day traders. And ultimately they are backed by financial institutions who have written contracts to provide a backstop.
The volume in "2X" or "3X" ETF's is minuscule and does not represent a threat to the overall market, only to the underlying financial institutions who issue the "make whole" contracts.
I was in the business when the first ETF was introduced (the SPIDER or "SPY"). That's been a long time now.
ETF's aren't a get rich quick scheme but they are a great way for investors to match or beat the S&P.
Before the SPIDER's, no investor could beat the market. Now, at least, every investor can keep up with it.
I have been beating the S&P for years with ETF's (but not by much). But such was unheard of before ETF's