S&P 500, Dow on track for worst week in two years

05 February, 2018, 06:30 | Author: Manuel Hopkins
  • Tech companies lead stocks sharply lower in early trading

At 2:13 p.m. ET, the Dow Jones Industrial Average fell 472.36 points, or 1.8 per cent, to 25,714.35, the S&P 500.SPX lost 42.99 points, or 1.52 per cent, to 2,778.99 and the Nasdaq Composite dropped 97.17 points, or 1.32 per cent, to 7,288.70.

The S&P 500 and the Dow are both on track for their biggest one-week declines in more than two years.

The plunge in stocks came after USA payrolls data showed a jump in wage inflation.

The Nasdaq is up 337.56 points, or 4.9 percent.

The optimism helped lift stock markets ever higher, extending the boom into its ninth year.

With the huge drop on Friday, the three major Wall Street indexes ended with their biggest losses for one week in almost two years, after closing the previous week at record highs.

But market players are not convinced that the bull market in stocks that that saw the S&P 500 rise 5.6 percent in January is over.

A strong U.S.jobs report and a Fed executive's comment that there could be more than three interest rate hikes this year have spooked investors.

Canada's main stock index slumped to a four-month low on Friday, with resource and marijuana shares leading broad based declines as higher bond yields pressured global equity markets.

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Rising bond yields also contributed the recent market volatility.

This has been a volatile week for USA stocks. Its weekly rout hit 3.7 per cent, most since February 2006.

NPR's Jim Zarroli reports that the wage gains have investors wondering "are we going too fast?"

The U.S. bond market's gauges of inflation expectations added to their earlier rise on Friday as domestic wages recorded their strongest annual increase in more than 8-1/2 years, suggesting inflation may be accelerating. "It is hard to argue against a March Fed rate hike now", said James Knightley, chief worldwide economist at ING Bank.

But they said that numerous fundamental factors that have driven stocks higher - including rising corporate earnings - remain intact, and that Friday's trading had no signs of panic selling.

"It's a legitimate concern, when inflation spikes up a little bit, that people should evaluate how is this going to affect profits and how is this going to affect the Fed", said Mr Jonathan Golub, chief U.S. equity strategist at Credit Suisse.

The last such drop on the TSX was more than seven months ago when it lost about 269 points on May 17, 2017.

The higher wage growth and potentially higher inflation "might then lead the Federal Reserve to raise their interest rates more rapidly than the market is comfortable with", he told NPR's John Ydstie. The 10-year Treasury yield popped above 2.85% for the first time since January 2014.

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. The unemployment rate stood at 4.1 percent, unchanged from December.

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