Investors are still weighing whether the sharp swings this week are the start of a deeper correction or just a temporary bump in the nine-year bull market, spurred by concerns over rising interest rates and bond yields. The first drop took place on Monday, when the index dropped by 1,175 points, making it the worst plunge in its history.
When you look at the best-performing stocks since 2008, you'll see that shareholders have had to deal with pullbacks much greater than 10% in order to enjoy the life-changing gains they've produced over the long haul.
"This is not the end of the world, but it is uncomfortable", said Rich Guerrini, CEO of PNC Investments. The yield on the 10-year Treasury note rose to 2.83 percent from 2.84 percent. The stock dropped $2.39, or 10.9 percent, to $19.57. That is why the higher-than-expected rise in United States wages announced last Friday played such a central role in sparking the market turmoil. Since 2008, the limited growth that has taken place in the USA, and the global economy more broadly, has been sustained by low rates. The Dow dropped by 1,000 points twice this week.
Trading has been extremely choppy, and the market has swung in wide ranges - up and down almost 2,300 points over the past week.
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In Tokyo, the Nikkei 225 index rose 1.1 percent. Asian markets fell more sharply.
"Equities have traded in a roller-coaster fashion all week and today is no exception", said Terry Sandven, chief equity strategist at U.S. Bank Wealth Management.
The Motley Fool is a USA TODAY content partner offering financial news, analysis and commentary created to help people take control of their financial lives. 2017 was an anomaly - it was a historically calm market. That combination usually carries stocks higher.
"We had an epic run". "Obviously people are reacting". When bond prices go lower, their yield increases. The Federal Reserve is planning to begin gradually raising interest rates this year now that the economy has shown stable growth and appears healthy enough to handle it.
That simply added to a sell-off sparked last Friday by figures pointing to stronger-than-expected USA wages growth - which rekindled fears about a pick-up in inflation and the possibility that the Fed would need to raise interest rates more rapidly than expected. But the Fed is expected to raise rates three times this year.
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If interest rates are increased, then it makes it more expensive for companies and individuals to borrow, which in turn impacts economic activity.
Washington is putting more pressure on rates.
Congress passed a two-year $400 billion spending bill. (This doesn't include 12 other corrections that blossomed into full bear markets with declines of 20% or more.) The peak-to-trough declines of corrections averaged 14% over five months, and it took only another four months for the market to fully recover. They generally move extremely slowly and they only produce big price swings when the company produces good or bad trading results, which may only happen a couple of times a year at best.
Corrections are surprisingly commonplace, typically occurring about every two years. It may seem disturbing that the market can lose three months' worth of gains in just a week or two, but most investors have hung onto the vast bulk of their profits from their longer-term investments. His promises for big corporate tax cuts helped lift the Dow more than 8,000 points, though it has since given back about a fifth of that surge.
Analyst Morningstar continued to attribute the global weaknesses in sharemarkets to a USA jobs report published a week ago that raised concerns about rising inflation and bond yields in the US.
US markets plunge; interest rate hike fears weigh in
But inevitably investors took advantage of the sharp drop in prices to come back into the market, sending the key indexes higher. The housing industry is solid and manufacturing is rebounding. "I don't see the possibility of a recession any time soon".
"The U.S. economy is on solid foundation", said ClearBridge's Schulze.
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