Febrero 19, 2018

Markets Right Now: Dow falls another 500, then recovers

09 Febrero 2018, 05:04 | Dolorita Barahona

Wall Street plunges, S&P 500 erases 2018's gains

New York City. Following Fridays's over 600 point drop the Dow Jones Industrial Average briefly fell over 1500 points in afternoon trading

Strong economic performance and prospects with the then-recent U.S. tax reforms had fuelled a bull market which saw the measure's value rocket up 1,000 points in 12 days. "And you know they haven't gone up for what seems like forever".

Yesterday's last-minute tumble "underscored the lack of conviction that still exists in the market, which is a byproduct of the market's stunning behaviour since last Friday", said analyst Patrick O'Hare.

And the combination of stronger earnings and sliding stock prices has also made the market less expensive that it was prior to the recent downturn, adds Keith Lerner, chief market strategist at SunTrust Private Wealth.

But inevitably investors took advantage of the sharp drop in prices to come back into the market, sending the key indexes higher. "Is there more inflation down the road than we're expecting?"

Last Friday's jobs report was strong: Wages are rising, and unemployment is historically low.

Investors remained skittish after this week's financial turmoil and overnight losses on Wall Street. Stocks fell sharply on Friday as traders anxious about inflation and rising interest rates.

It's unclear if the global markets are really moving in "lockstep", as some observers have suggested, but uncertainty abounds. Japan's Nikkei 225 index was an exception, although it ended trading flat, gaining a mere 0.16 per cent.

Great Britain's FTSE 100 was down almost 2% in London at roughly noon local time, reflecting similar drops in France and Germany.

What does this mean for the Trump rally?

Going back to 2010, the S&P 500 index has fallen 3 percent or more in a single day 15 times.

"Now that looks even more like a good decision, because it will give me time to invest more and give the market time to recover", she said.

Stocks fell further and further as the day wore on and suffered their fifth loss in the last six days. It had been up as much as 7.5 percent less than two weeks ago.

Is this the worst decline ever?

On Monday, the Dow finished down 4.6 percent, the biggest decline in percentage terms since August 2011, when investors were fretting over Europe's debt crisis and the debt ceiling impasse in Washington that prompted a US credit rating downgrade.

Still, the fact that the Dow has now dipped more than 5%, coupled with its inability so far today to mount a sustainable rebound, boosts the chances of further drops. And on several days during the financial crisis in 2008, the Dow dropped 6% or 7%. That's a big spike from just 2.65% during the panic selling Monday afternoon. Think of it as an emergency brake. As a result, the biggest losses went to high-dividend companies such as utility and real estate companies, which investors often buy as an alternative to bonds. This would be much more severe than what happened Monday.

XIV, the second-largest publicly traded product tracking swings in the S&P 500, will cease trading on 20 February, the bank said. If it tries to correct and does not, we could see another 2008 recession.

In the US, unemployment is at a 17-year low. The last market correction ended nearly two years ago. Consumer and business confidence are near record levels.

With Monday's declines, the S&P 500 erased its gains for 2018 and is now down 0.9 percent in 2018.

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