US Dow Jones plunges over 1000 points

February 09 09:50 2018

Its steep dive in the final minutes of trading put the Dow in correction territory.

The S&P 500 and Nasdaq indexes also experienced continuing decline, each dropping 3 percent. Trading volumes were 50 percent above normal.

New York Federal Reserve President Bill Dudley told Bloomberg News on Thursday that if the US economy keeps getting stronger the central bank may be justified in raising rates four times this year.

The slump means the Dow Jones has wiped out of all of its gains so far in 2018, following months of surges fuelled by optimism about the U.S. economy, corporate earnings and the global outlook.

But the other big worry is that the US Federal Reserve Bank will raise interest rates too quickly.

Though a dip had been expected for a while, USA losses seemed to spook global markets.

The VIX, which measures market volatility expectation in the S&P 500, jumped 124 percent Monday to as high as 38.80 – its highest level since August 2015. Most Asia indexes were positive overnight.

The local currency was trading at 77.98 U.S. cents at 0700 AEDT on Friday, from 78.25 on Thursday.

Attractive yields on a safer investment have made stocks suddenly less attractive.

“The bond market has definitely got the stock market’s attention”, said Ryan Detrick, senior market strategist at LPL Financial.

The uptick in volatility comes as investors react to the shifting conditions. That’s why everybody is going back and forth. “Be careful what you wish for”.

The S&P 500 gave up 100 points, or 3.8 percent, to 2,581. Several Dow members lost more than five percent, including American Express and Home Depot.

Martin, of Globalt Investments, said he did not see anything specific moving the market lower Thursday.

Benchmark 10-year notes last rose 1/32 in price to yield 2.8276 percent, from 2.832 percent late on Wednesday.

The percentage of USA individual investors expecting a decline in stock prices has hit a three-month high, according to the American Association of Individual Investors’ weekly sentiment survey.

Some believe the 3 percent yield is inevitable. The country’s 10-year yield almost surpassed a four-year high of 2.885 per cent in the morning trading on Thursday, a level that helped trigger a global sell-off in equity markets on Monday, reports Xinhua news agency. This week’s Treasury auctions have underwhelmed, raising the possibility that the debt selloff could steepen. Still, traders are bracing for more market volatility, wondering if the Fed will hike rates more than three times this year, the current target. Accustomed to buying the dip, that wisdom is now in question when more selling by speculators may be imminent. He said investors are now selling because they are afraid of bigger losses if they stand pat.

The losses were broad. Boeing and Caterpillar took some of the worst losses. Gold ticked higher, the yen held gains and even Treasuries pared the worst of their declines. A pickup in inflation could prompt the Federal Reserve to raise interest rates at a faster pace, which would act as a brake on the economy. “There is an emerging inflation story in the US – and rising USA inflation makes monetary policy less predictable”.

Economies around the world are strengthening and corporate profits are on the rise. And the Fed may hesitate to come to the rescue. The unemployment rate is 4.1%, a 17-year low, and economic growth is expected to gain steam in 2018.

“Fundamentals in terms of long-term are very strong”, Shah said.

In the foreign exchange market, the dollar was flat after earlier hitting two-week highs against a basket of major currencies as investors reduced bearish bets on the greenback. For four days in August 2011 the Dow alternated up and down days of 4 percent and 5 percent, and it tumbled as much as 6.6 percent on Aug. 24, 2015.

CNN and 24/7 News Source contributed information to this article.

Bryan R. Smith  AFP  Getty Images

US Dow Jones plunges over 1000 points
 
 
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