WALL STREET PLUNGES, S&P 500 ERASES 2018'S GAINS
 |
| A board above the trading floor of the New York Stock Exchange shows the closing number for the Dow Jones industrial average, Feb. 5, 2018. |
U.S. stocks plunged
in highly volatile trading on Monday, with both the S&P 500 and Dow
Industrials indices slumping more than 4.0 percent, as the Dow notched its
biggest intraday decline in history with a nearly 1,600-point drop and Wall
Street erased its gains for the year.
The declines for the
benchmark S&P 500 index and the Dow Jones Industrial Average were the
biggest single-day percentage drops since August 2011, a period of stock-market
volatility marked by the downgrade of the United States’ credit rating and the
euro zone debt crisis.
The question now for
investors, who have ridden a nearly nine-year bull run, is whether this is the
long-awaited pullback that paves the way for stocks to again keep rising after
finding some value, or the start of a decline that leads to a bear market.
”A lot of people who
have been in this market for the past three or four years have never seen this
before,” said Dennis Dick, a proprietary trader at Bright Trading LLC in Las
Vegas. “The psychology of the market changed today. It’ll take a while to get
that psychology back.”
 |
| A trader works on the floor at the closing bell of the Dow Industrial Average at the New York Stock Exchange, Feb. 5, 2018 in New York. |
Bulls argue that
strong U.S. corporate earnings, including a boost from the Trump
administration’s tax cuts, will ultimately support market valuations. Bears,
including short sellers that bet on the market decline, say that the market is
over-stretched in the context of rising bond yields as central banks withdraw
their easy money policies of recent years.
The U.S. stock
market has climbed to record peaks since President Donald Trump’s election, on
the prospect of tax cuts, corporate deregulation and infrastructure spending,
and it remains up 23.8 percent since his victory. Trump has frequently taken
credit for the rise of the stock market during his presidency, though the rally
and economic recovery was well underway during the Obama administration.
 |
| Dow plunges 1,175 points in worst day for stocks since 2011. |
As the stock market
fell on Monday, the White House said the fundamentals of the U.S. economy are
strong. U.S. economic growth was running at a 2.6 annualized rate in the fourth
quarter last year and the unemployment rate is at a 17-year low of 4.1 percent.
On Monday, the
financial, healthcare and industrial sectors fell the most, but declines were
spread broadly as all major 11 S&P sectors dropped at least 1.7 percent.
All 30 of the blue-chip Dow industrial components finished negative.
With Monday’s
declines, the S&P 500 erased its gains for 2018 and is now down 0.9 percent
in 2018. The Dow is down 1.5 percent for the year.
The market’s
pullback comes amid concerns about rising bond yields and higher inflation
which were reinforced by Friday’s January U.S. jobs report that prompted
worries the Federal Reserve will raise rates at a faster pace than expected
this year.
“The market has had
an incredible run,” said Michael O’Rourke, chief market strategist At
JonesTrading In Greenwich, Connecticut.
“We have an
environment where interest rates are rising. We have a stronger economy so the
Fed should continue to tighten ... You’re seeing real changes occur and
different investments are adjusting to that,” O‘Rourke said.
The Dow Jones
Industrial Average fell 1,175.21 points, or 4.6 percent, to 24,345.75, the
S&P 500 lost 113.19 points, or 4.10 percent, to 2,648.94 and the Nasdaq
Composite dropped 273.42 points, or 3.78 percent, to 6,967.53.
On Monday, the
S&P 500 ended 7.8 percent down from its record high on Jan. 26, with the
Dow down 8.5 percent over that time. The declines come after the Dow and
S&P posted their biggest weekly percentage drops since January 2016 last
week, and the Nasdaq posted its biggest weekly drop since February 2016.
At one point, the
Dow fell 6.3 percent or 1,597 points, the biggest one-day points loss ever.
Even with the sharp declines, stocks finished above their lows touched during
the session.
“It doesn’t look
like people are working their orders – the programs are trading this,” Dan
Ryan, who works on the New York Stock Exchange floor for E&J Securities,
said as he was leaving work for the day.
Investors also
unloaded riskier corporate bonds during the Wall Street stock market rout.
Exchange-traded funds that focus on junk bonds suffered a third day of losses.
BlackRock’s iShares iBoxx High Yield Corporate Bond ETF, which has about $16
billion in assets, fell 0.6 percent to its lowest share price since December
2016.
The CBOE Volatility
index, the closely followed measure of expected near-term stock market
volatility, jumped 20 points to 30.71, its highest level since August 2015.
“One thing is that
going into the last week or so, investor bullishness was in the top decile of
its historical range, which suggests that investors were pretty optimistic,
with high expectations and largely complacent,“ said Jack Ablin, chief
investment officer with Cresset Wealth Advisors in Chicago. ”There’s kind of an
emotional reversal that’s going on.”
About 11.5 billion
shares changed hands in U.S. exchanges on Monday, well above the 7.6 billion
daily average over the last 20 sessions.
Declining issues
outnumbered advancing ones on the NYSE by a 8.64-to-1 ratio; on Nasdaq, a
6.92-to-1 ratio favored decliners.
The S&P 500
posted 1 new 52-week highs and 38 new lows; the Nasdaq Composite recorded 17
new highs and 164 new lows.
Source: Reuters
No comments