February 19, 2019

Dow Jones Plummets Again On Worries About Inflation

10 February 2018, 06:00 | Joann Bryant

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The Dow Jones industrial average is up more than 300 points in early trading Friday, a day after it suffered its second 1,000-point drop in a week.

All US stock market indexes were down when they closed amid a volatile trading week that some analysts say could be on pace to match the 2008 financial crisis.

The chief cause of the pullback is a rise in USA bond yields because of growing expectations that a strong economy will result in higher inflation and an increase in interest rates this year.

Global stock markets have been hit by concerns about the strength of the U.S. economy, and its impact on inflation, prompting in turn speculation about interest rate hikes. European indexes were down about 2 percent, while Japan's Nikkei lost 4.7 percent.

The S&P 500 fell more almost 40 points to 2,541, and the Nasdaq tanked more than 100 points after coming out of the gate up 1.5 percent from the previous day.

The sharp swings came one day after the steepest drop on Wall Street in 6 ½ years. "As quickly as the market fell, it recovered much of the ground it had lost as investors remembered the economy and corporate earnings remain strong", he added.

"The strong headlines job numbers and strong wage growth that we saw last Friday have really seen investors anxious about the threat of higher inflation and the prospect of higher interest rates in the USA", said Candice Bangsund, a vice-president and portfolio manager at Fiera Capital in Montreal. It was up 345 points, or 1.4 percent, at 24,694 as of 3:23 p.m.

The Standard & Poor's 500 index was down 8 points, or 0.3 percent, at 2,639. Its quick ratio for the most recent quarter is 1.60.

"Investors are nervous about three things", said Larry Hatheway, an economist and Zurich-based asset manager. Australia's benchmark S&P ASX 200 slid 3.2 percent to 5,833.30 and South Korea's Kospi declined 1.5 percent to 2,453.31.

The S&P 500's market value surged $6 trillion between President Trump's election and the all-time high on January 26. At about 2.83 percent Friday, Treasury 10-year yields are near their highs of the year, having risen from last year's low of 2.01 percent in early September. "There's a fair amount of volatility in the market, and our belief is the volatility is leaving investors riddled with stress and uncertainty, which is likely to continue". Numerous companies that led the market's gains over the past year have struggled badly in the last week. The Dow is still up 20 percent over that time, the S&P 500 15 percent. Natural gas gave up 1 cent to $2.70 per 1,000 cubic feet. It's also not reassuring that such sloppy results came in a week where equity volatility exploded and stocks tumbled into an official correction. The Hang Seng in Hong Kong has lost 13% over the same period. That means a drop of 10 percent from a recent peak. The TSX is down 8.2 per cent from its all-time high of 16,412.94, set on January 4. Germany's DAX declined 2.6 percent.

The catalyst for the latest sell-off came in jobs figures last Friday showing that wage growth in the USA was creeping higher.

In currency trading, the dollar fell to 109.32 yen from 109.54 yen late Tuesday.

European equities did not go unscathed with the Euro Stoxx 600 dropping 1.6% and the FTSE 100 down 1.5% yesterday.

On Monday, the Dow finished down 4.6 percent while the S&P 500 sank 4.1 percent.

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