That smooth ride might now be ending.
Advertisement
Before Friday, the last time the S&P 500 index fell 2 percent in a day was in September 2016.
The Dow closed at 25,520.96, and Friday’s 666-point drop was the sixth-worst ever.
The sharp decline in stocks this week short-circuited a robust start to the year that was spurred by strong global economic growth, solid company earnings and lingering enthusiasm about the US Republican tax overhaul.
The numbers were a good sign for workers.
So the market was ripe for investors to cash in part of their profits from a rally, and the growing interest rate worries provided one of the sparks to take money off the table, analysts said. That is unnerving for investors accustomed to the last decade’s rock bottom rates. On Wednesday the USA central bank said inflation was likely the rise over the course of the year.
In recent weeks, the shift in sentiment has played out across the world’s largest financial markets.
That is not to say the market is collapsing.
Even stock market bulls have long said that a pause – or even a dip – would help prevent the market from overheating. I think we’re going to get to 3.25 percent this year.
US hiring picked up in January and wages rose at the fastest annual pace since the recession ended, as the economy’s steady move toward full employment extended into 2018.
The news might fall into that unusual category of “good news is bad news”, as it might pave the way for the Federal Reserve to increase interest rates sooner than it might otherwise have done. Daimler Benz (as we reported yesterday) disappointed the market with a warning that higher-than-expected tech investments would suppress earnings growth during 2018, and the DAX followed.
This prompted the 10-year Treasury yield to surge to a 4-year high, raising concerns that higher yields may adversely affect businesses.
No sign of a recovery yet, as losses lengthen in expectations of the Fed hiking interest rates next month.
For instance, the benchmark Standard & Poor’s 500 index jumped an eye-popping 7.5 percent in January alone. “Yes, earnings are strong and the economy is doing well, but markets just don’t go straight up”.
More: 401 (k) investors: Is a “melt-up” happening in the stock market? Rising yields can undercut appetite for assets perceived as risky, including stocks.
Economists are still debating how well that worked.
In a odd way, investors are nervous that the global economy is doing too well.
“The pullback has everything to do with the 10 year Treasury moving higher, breaching that 2.8 percent level”, said Wayne Wicker, chief investment officer at ICMA Retirement Corporation.
The Nasdaq has fallen more than 100 points despite Amazon reporting record earnings.
Advertisement
Analysts said the Federal Reserve now looks increasingly likely to raise interest rates next month when its panel of rate-setters meets for the first time under new chairman Jerome Powell.
