Dow Futures Tumble 225 Points, Bond Yields Spike on Jobs Surprise

Gladys Abbott
February 5, 2018

The Dow and S&P 500 suffered their worst week in two years, while the Nasdaq has not seen a week as bad since the early part of February of 2016. That was the worst point drop since the blue-chip average fell 678.92 points on October 9, 2008, in the midst of the nation's financial crisis.

The blue-chip stock gauge is at risk of suffering its biggest one-day point decline since June 24, 2016, when it fell 610 points after the Brexit vote shocked markets. More broadly, the S&P 500 index fell 2.1% at 2,761, while the Nasdaq Composite index finished down 2% at 7,240.

United States stocks plunged Friday on worries about rising interest rates following a better-than-expected jobs report as the torrid Wall Street rally that opened the year flamed out dramatically.

All 30 of the Dow's component stocks fell, with energy, technology and financial shares posting some of the heaviest declines.

It's widely expected that corporate earnings will continue to grow by double digits, especially now that the USA tax reform plan has cut the federal corporate tax rate to 21 percent from 35 percent.

"However, with the economy close to full employment, increased pressure on wages looks an inevitable effect, so, higher inflation is surely on the cards, with taller interest rates set to arrive over the coming months", he added.

Exxon Mobil Corp and Chevron Corp shares were down 5.6 per cent and 4.2 per cent, respectively, after the oil companies posted lower-than-expected fourth-quarter profit.

On the economic front, total nonfarm payroll employment increased by 200,000 in January, and the unemployment rate stayed unchanged at 4.1 percent, stronger than market expectations, the U.S. Bureau of Labor Statistics said Friday.

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While interest rates are still low by historical standards, meaning borrowing is still relatively cheap for businesses and people, they've been rising more swiftly, and that's what has markets on edge.

Investors fear the pickup in hourly wages, along with a recent uptick in inflation, may make it more likely that the Fed will raise short-term interest rates more quickly in the coming months. There will be more market swings this years, and Wicker said he advocates riding it out.

Sinking tech stocks pressured Asian benchmarks today, with South Korea's Kospi suffering the most among its regional peers.

- The British pound fell 1 percent to $1.4123.

MARKETS OVERSEAS: Major stock indexes in Europe declined.

The market is heading for its biggest weekly drop in two years.

Even stock market bulls have long said that a pause - or even a dip - would help prevent the market from overheating.

The Fed also expected US 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. The index's five-day rout topped 3 percent - marking its first pullback of at least that much in a record 404 days.

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