US Stocks Plunge as Interest Rate Fears Grip Markets

05 February, 2018, 06:28 | Author: Martin Tyler
  • Trader bemoaning big losses

The Dow closed down 666 points, or 2.5%, its biggest percentage decline since the Brexit turmoil in June 2016 and steepest point decline since the 2008 financial crisis.

The Dow had lost almost 700 points, or 2.5%, at the closing bell, with weak earnings reported from several American business behemoths, including Exxon Mobil and Google's parent company Alphabet.

This week's market pullback has come even as US economic data continues to reflect strong growth. The Dow and the Nasdaq have climbed more than 40% apiece since the 2016 election.

Assuming they have well-designed portfolios, "mom and pops sitting at home. should not be concerned, given the massive run up in the market", he added.

Others have said USA stocks were rising mostly on the economic growth that's been seen worldwide in the last two years, which also had sent foreign stocks higher.

Each of the 11 major sectors in the S&P 500 ended down on Friday.

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Optimism over forecasts has caught the attention of anxious investors, who hope that strong earnings can support lofty stock valuations and offset the concerns over rising bond yields and the pace of Federal Reserve rate hikes.

Technology companies were leading stocks broadly lower in early trading, extending the market's slide into a second day.

Analysts have been eyeing a recent increase in United States bond yields that accelerated further on Friday following the jobs data.

Those factors could help to underpin USA earnings even after the tax benefit is priced in.

More recently, the market had been surging in the so-called 'Trump rally'.

The Fed also expected USA inflation on a 12-month basis to "move up this year and to stabilize" around the central bank's 2 percent target over the medium term. Some investors saw a potential buying opportunity. The Fed started raising rates two years ago.

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Their goal was to incentivize investors to put their cash to work in the economy - for example, by buying corporate stocks and bonds - rather than stashing it in the relative safety of government bonds.

That is unnerving for investors accustomed to the last decade's rock-bottom interest rates. The average 30-year fixed mortgage rate is around 4.2 percent, up from less than 4 percent at the end of 2017.

With half of the S&P 500 index companies still to report fourth-quarter results and potentially give guidance on 2018, profit estimates are likely to increase further.

Nonfarm payrolls jumped by 200,000 jobs last month after rising 160,000 in December, the Labor Department said on Friday.

On Wednesday, the Federal Reserve left its benchmark interest rate unchanged at 1.25 to 1.5 percent after its two-day meeting, while giving an upbeat assessment of recent US economic growth.

The economy's growth already has helped push up market interest rates, and the yield on the Treasury's 10-year note hit 2.84 percent on Friday, its highest level since 2014.

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