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Dow Tumbles Over 1,100 Points in Biggest Point-Drop Ever

Posted by hkarner - 6. Februar 2018

Date: 05-02-2018
Source: The Wall Street Journal

The sharp drop was part of a global selloff as indexes around the world gave up their gains for 2018

The Dow Jones Industrial Average plunged more than 1,100 points in a volatile session Monday, its largest one-day point decline on record.

The global selloff in stocks rippled through Europe and Asia as well, as a long-running market rally threatened to become a rout. Indexes in all three regions gave up their gains for 2018.

“This is the first time in a while I’d say it feels like borderline panic-type selling,” said Tim Anderson, managing director at brokerage TJM Investments, as yelling broke out on the floor of the New York Stock Exchange. “We haven’t seen something like this since the Brexit vote.”

Monday’s losses were broad-based, with all 11 sectors in the S&P 500 posting declines, led by losses in the energy, financials and health-care segments.

At 4 p.m. ET, the Dow had fallen 1,175 points, or 4.6%, to 24346. The S&P 500 lost 4.1%, and the Nasdaq Composite fell 3.8%–with both indexes registering their first three-day declines since December. At its lowest point Monday, the Dow fell 1,597 points.

The stock market has stumbled after a strong start to 2018 as investors have expressed concern that a long streak of tepid inflation and low interest rates could be drawing to a close.

Inflation remains at low levels, but investors took Friday’s jobs report, which showed U.S. wages rising at their strongest annual clip since June 2009, as fresh evidence that the economy is heating up. The yield on the benchmark 10-year Treasury note, which tends to rise on signs of inflation, jumped last week to its highest level since January 2014.
Rising yields typically mean higher borrowing costs for companies and can also push the Federal Reserve to raise interest rates more quickly–something that can reduce the relative attractiveness of stocks. Rising inflation and a crash in the bond market were cited as the greatest tail risk for markets in Bank of America Merrill Lynch’s January fund manager survey.

Still, some investors say the stock rally is merely pausing after a strong 2017 run that took many by surprise. With the recent losses, the Dow industrials are still up about 0.7% for 2018.

“The markets are just taking a bit of a breather, which I’d argue is somewhat healthy,” said Joseph Tanious, senior investment strategist for Bessemer Trust. Data still suggest that economic growth around the world is solid and corporate profits in the U.S. are strong, two factors that should help U.S. stocks keep climbing, he added.

Bank shares slid Monday, with the KBW Nasdaq Bank Index of large U.S. lenders down 3% and extending declines after posting its steepest loss of the year Friday.

Wells Fargo fell 8.8%, on track for its biggest one-day percentage decline in years, after the Federal Reserve on Friday restricted the size of the bank.

Declines in shares of oil-and-gas companies also dragged on major indexes. The S&P 500 energy sector shed 3.5%, while U.S. crude oil declined 2% to $64.15 a barrel.

Meanwhile, a measure of expected swings in the S&P 500, the Cboe Volatility Index, shot higher, recently trading up 27% after closing at the highest level since November 2016 on Friday.

Even with the recent rise in bond yields, many investors are confident stocks will continue to do well in 2018. Interest rates and government bond yields globally remain low by historical standards, and stocks often have risen alongside them as the economy strengthens.

Treasury bonds rebounded Monday, with the yield on the benchmark 10-year U.S. Treasury note recently at 2.819%, according to Tradeweb, from 2.852% late Friday, their highest level since January 2014. Yields fall as bond prices rise.

Improving sentiment among investors and solid corporate earnings also suggest the picture for stocks is still a bright one, said Aaron Anderson, research chief at Fisher Investments.

Roughly 80% of S&P 500 companies that have reported results for the fourth quarter have posted sales that beat analysts’ expectations, on track for the most positive surprises since at least 2008, according to FactSet.

Elsewhere, the Stoxx Europe 600 fell 1.6%, erasing its year-to-date gains, as shares of oil-and-gas companies and real-estate firms slid.

Many stock indexes in Asia also recorded steep declines, weighed down by lower oil prices. Hong Kong’s Hang Seng Index fell as much as 2.7% before paring declines to 1.1%, while Japan‘s Nikkei Stock Average closed down 2.5%, posting its biggest one-day decline since November 2016 and wiping out all its gains for the year.

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