Published: Sat, February 10, 2018
Markets | By Erika Turner

Dow Jones Plummets Again On Worries About Inflation

Dow Jones Plummets Again On Worries About Inflation

Facebook and Boeing have both fallen sharply.

A hint of rising inflation and interest rates last week was all it took to set off a cascade of investor angst. Major economies around the world are growing in tandem for the first time since the Great Recession and corporate profits are on the rise.

The economy is strong, but investors are anxious about inflation, and the possibility that the Federal Reserve will raise interest rates faster than expected to fight it.

Investors fear the rapid rise in Treasury yields this year could signal inflation and faster rate hikes from the Federal Reserve.

The Dow Jones industrial average lost 1,032.89 points, or 4.1 percent, to 23,860.46.

By 5:40 a.m., Dow e-minis were down 32 points, or 0.13 percent, S&P 500 e-minis were up 3 points, or 0.12 percent, and Nasdaq 100 e-minis were up just 9.5 points, or 0.15 percent.

On Wall Street, futures for the Dow and the Standard & Poor's 500 were down 0.1 percent and up 0.2 percent, respectively, though the actual market open does not always follow the futures closely in times of volatility.

The bank said it will be some time before Australia's unemployment rate drops to what it considers full employment and also before the limp inflation rate - now at 1.9 per cent - reaches the midpoint of its preferred two to three percent target band.

Traders are still braced for more volatility as they try to figure out if the swings over the past few days are the start of a deeper correction or just a temporary blip in the United States market's nine-year bull run.

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Stocks had been rising steadily since the election in part because the economy is so strong. The unemployment rate is 4.1%, a 17-year low, and economic growth is expected to gain steam in 2018. The housing industry is solid and manufacturing is rebounding. Its latest appearance, in my view, isn't another financial crisis. "This is just some healthy, and overdue, volatility to wring out any excess". That means companies have to pay more for their loans, which cuts into corporate profits. Higher bond yields also make stocks look less attractive by comparison. Heating oil lost 1 cent to $1.92 a gallon. With interest rates still so low today, and the Fed on a path to increase them (which puts downward pressure on bond values), the best you can expect to earn on bonds is the current interest rate. If rates rise quickly, that argument becomes much less persuasive.

The VIX, a measure of market volatility, jumped 15% on Thursday. He said investors are now selling because they are afraid of bigger losses if they stand pat.

The drop comes on the heels of a similar plunge Monday that erased the stock market's gains for the year. "It can take two to three weeks to work through the system".

Benchmark U.S. crude oil lost 64 cents, or 1 percent, to $61.15 a barrel in NY. It fell 64 cents the previous session to $61.15. The April gold bullion contract was up US$4.40 to US$1,319.00 an ounce. The Nasdaq also fell by nearly 4%. The euro held steady at $1.2248.

"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. That also sent the pound higher.

The stock has a market cap of $2.68B and the number of outstanding shares has been calculated 79.16M.

COMPANIES: Walmart was the biggest decliner in the 30-company Dow, sliding $2.43, or 2.4%, to $97.59.

Bond yields in the U.S. have also risen in recent weeks, typically a signal of higher rates. "The thing to watch is if we see the 10-year Treasury yield move, it will cause more pain in the stock market". The index has, however, experienced larger percentage declines in its history. Tokyo's Nikkei 225 lost 2.3 percent and Hong Kong's Hang Seng gave up 3.1 percent.

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