Dow loses more than 650 points as USA stocks swoon
05 February, 2018, 06:30 | Author: Barbara Daniel
A week of investor panic ended with the Dow Jones Industrial Average closing down 665 points on Friday, the biggest point decline since the 2008 financial crisis, the New York Stock Exchanges reported.
For the week, the blue-chip Dow declined 4.1 percent, and the broader S&P 500 lost 3.9 percent, while the tech heavy Nasdaq decreased 3.5 percent.
Investors are afraid that the recent rise in US wages means inflation is on the way.
Even after the selloff this week, the S&P 500 is up 3.3% for this year and that is on top of a 19.4-percent gain for 2017.
While interest rates are still low by historical standards, meaning borrowing is still relatively cheap for businesses and people, they have been rising more swiftly, and that is what has had markets on edge.
This week, fears of higher rates overwhelmed the upbeat profit picture as the benchmark S&P 500 stock index fell 3.9% and raised some concern about a deeper pullback.
The Dow dropped almost 666 points, or 2.5 percent, just two weeks after it surpassed the 26,000-mark for the first time.
"Optimism has fled the stock markets", according to a note by analysts from the bank, Desjardins.
While some pundits questioned whether the incendiary memo was dousing the stock market blaze, experts said the market downswing was all about the numbers.
This has been a volatile week for US stocks. Market analysts pointed to the clash between the Trump administration and the Federal Bureau of Investigation as another concern. Some investors saw a potential buying opportunity. On Wednesday the United States central bank said inflation was likely the rise over the course of the year.
Analysts said interest rates were the top story throughout the week.
President Donald Trump has repeatedly taken to Twitter to tout the stock market gains as a sign of his administration's success, and cited the Dow's gains in speeches and appearances. The rate was at 2.41 per cent four weeks ago and 2.66 per cent on Monday.
Bond yields rose and contributed to the stock market swoon after the government reported that wages last month grew at the fastest pace in eight years.
On the economic front, total nonfarm payroll employment increased by 200,000 in January, and the unemployment rate stayed unchanged at 4.1 percent, stronger than market expectations, the U.S. Bureau of Labor Statistics said Friday.
"The bond market sold off and the expectation is three maybe four rate hikes this year in light of the jobs report", said Nolte.
Investors have grown increasingly anxious that a rapid rise in interest rates, spurred by higher inflation, could derail the market's strong and calm ride upward.
S&P 500 measures the performance of 500 widely held common stocks of large-cap US companies.
Interest rates that are set every day in the global bond markets are already leaping higher, in anticipation of central bank rate increases later this year.
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USA employers added a robust 200,000 jobs in January, slightly above market expectations for a 185,000 increase. The 3 percent yield is looked at as a key threshold that can drive investors out of equities and into bonds.
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