Dow caps insane week with 330-point bounce

Wall Street capped a week of violent swings with a big gain.The Dow climbed 330 points on Friday in another ex...

Posted: Feb 10, 2018 10:14 AM
Updated: Feb 10, 2018 10:14 AM

Wall Street capped a week of violent swings with a big gain.

The Dow climbed 330 points on Friday in another extremely turbulent day of trading. At one point the index was down 500 points. At another it was up 500.

Fears about inflation and soaring bond yields drove the Dow down about 1,300 points on the week. The 5.2% sell-off was the worst weekly decline in two years.

All week, the market gyrated between large gains and even larger losses. There were two 1,000-point declines for the Dow, as well as the index's fourth-biggest gain ever.

"We've gone from very calm to very volatile in a short period of time," said Matt Forester, chief investment officer at BNY Mellon's Lockwood Advisors.

Had the Dow lost any ground on Friday, it would have been the index's worst week since October 2008, during the financial crisis.

"The trigger has been the really fast rise in bond yields," said Evan Brown, director of asset allocation at UBS Asset Management.

Investors breathed a sigh of relief when the S&P 500 broke below and then sharply bounced above a crucial level of support known as the 200-day moving average. A close below that level, around 2,538, could have touched off even more selling.

Although the weekly losses came close to the scary days of the crisis, the market and economy are in vastly better shape than in 2008. Unemployment is the lowest in 17 years, and the banking system has mostly healed.

The recent turmoil follows a prolonged period of booming stock prices with virtually no sharp declines. Such a rapid rise is unusual, and market analysts long warned that a pullback was overdue.

"We were very overdue. It's been way too calm," Forester said.

Related: Stocks flew too close to the sun. Now what?

The S&P 500's market value surged $6 trillion between President Trump's election and the all-time high on January 26. The rout erased $2.5 trillion in value from the S&P 500 and $5.2 trillion from global stocks, according to S&P Dow Jones Indexes.

The jitters have been driven by the rapid rise in 10-year Treasury yields. Selling in the bond market led Wall Street to worry that inflation will force the Federal Reserve to speed up its rate hike plans.

The 10-year Treasury yield, which touched a four-year high of 2.88% on Thursday, is trading around 2.84% on Friday.

One new source of pressure on bonds is the budget deal that Trump signed on Friday. The bipartisan agreement boosts federal spending limits by $300 billion over the next two years. The federal budget deficit could top $1 trillion in fiscal 2019, according to Bank of America.

To pay for the spending spree, the Treasury Department will be forced to borrow even more money by selling additional bonds. Rates may have to go up to attract buyers for those bonds.

The budget deal could stimulate the economy even more over the next 10 years than last year's tax cut, Brown said. Because the economy is already strong, that boost from Washington could speed up inflation.

"You are at full employment, and the government is engaging in significant fiscal stimulus," Brown said. "There are concerns that this is not the ideal time to be increasing fiscal expansion. The market is pricing in potential for some overheating."

Nicholas Colas, co-founder of DataTrek Research, doesn't think the sell-off will end until bond yields fall sharply.

"Too late to sell, too early to buy ... That feels like where we are," Colas wrote in a report. "Stocks won't bottom until long term Treasuries rally hard."

Related: This is why the Dow is plunging

Crude oil prices have also retreated during the market turmoil. Crude slumped 3% on Friday and slipped below $60 a barrel for the first time this year. Oil prices have now lost more than 10% of their value from the peak in late January.

The ferocity of the selling has caught investors off guard.

The boom carried the stock market so high that it was considered "extremely overbought" based on technical factors. But the plunge has left the S&P 500 "extremely oversold," according to Bespoke Investment Group. Such a dramatic swing in the span of just two weeks is very rare.

While the market turbulence can be alarming, analysts urged investors to stay calm because the economic backdrop is strong. The unemployment rate is 4.1%, a 17-year low, and economic growth is expected to gain steam in 2018.

"The last thing anybody should do is overreact to traditional volatility," said Rich Guerrini, CEO of PNC Investments.

Despite the heavy losses this week, the Dow remains up 36% since Trump's election.

"The outlook for the economy is extremely positive, the strongest in a long, long time," said Doug Cote, chief market strategist at Voya Investment Management.

"Based on fundamentals, this is a buying opportunity," he said.

Minnesota Coronavirus Cases

Data is updated nightly.

Cases: 489116

Reported Deaths: 6614
CountyCasesDeaths
Hennepin1014901592
Ramsey43327810
Dakota36619394
Anoka33496391
Washington22208262
Stearns18822202
St. Louis14887265
Scott13403107
Wright12609116
Olmsted1185990
Sherburne878574
Carver787641
Clay695588
Rice677691
Blue Earth601035
Kandiyohi581274
Crow Wing523582
Chisago501745
Otter Tail486071
Benton450990
Winona419749
Mower410831
Douglas394568
Goodhue389069
Nobles387247
Polk345063
McLeod341250
Beltrami338951
Morrison327747
Becker314842
Itasca314646
Lyon313845
Isanti309456
Steele303611
Carlton300449
Freeborn286424
Pine283216
Nicollet262441
Todd249730
Brown248237
Le Sueur238120
Mille Lacs229447
Cass221224
Waseca210417
Meeker208134
Martin190829
Wabasha18733
Roseau181017
Hubbard161041
Houston158214
Dodge15404
Renville152640
Redwood147127
Fillmore13969
Pennington138716
Chippewa136935
Cottonwood136020
Wadena131420
Faribault124917
Aitkin119133
Sibley118310
Watonwan11828
Rock116314
Kanabec108820
Pipestone101824
Yellow Medicine97717
Murray9548
Jackson94610
Swift87818
Pope8165
Marshall78615
Stevens7478
Lake74218
Clearwater72014
Lac qui Parle68716
Wilkin67711
Koochiching62111
Big Stone5173
Lincoln5122
Grant4928
Norman4798
Unassigned44768
Mahnomen4437
Kittson41021
Red Lake3615
Traverse3115
Lake of the Woods2221
Cook1190

Iowa Coronavirus Cases

Data is updated nightly.

Cases: 337676

Reported Deaths: 5494
CountyCasesDeaths
Polk52087560
Linn19512317
Scott17167212
Black Hawk14970293
Woodbury13847214
Johnson1317075
Dubuque12450196
Dallas1022593
Pottawattamie9897146
Story965045
Warren514976
Clinton502684
Cerro Gordo501383
Webster495788
Sioux480369
Marshall465273
Des Moines428461
Muscatine426393
Buena Vista413237
Wapello4059110
Jasper387767
Plymouth368978
Lee354653
Marion341571
Jones285155
Henry279837
Bremer270555
Carroll266948
Crawford253635
Boone244330
Benton241154
Washington239547
Mahaska215746
Jackson210339
Dickinson204240
Tama203065
Kossuth198655
Delaware186240
Clay184425
Winneshiek183628
Fayette179335
Page178119
Buchanan177829
Wright174531
Hamilton173942
Cedar172723
Hardin170239
Harrison167670
Clayton160254
Butler159331
Mills148520
Floyd148141
Poweshiek148030
Cherokee146236
Lyon145741
Allamakee144848
Madison143218
Iowa140723
Hancock138030
Grundy132430
Winnebago130531
Calhoun129611
Cass129651
Jefferson128634
Appanoose123247
Louisa122644
Mitchell120740
Chickasaw119915
Union119331
Sac118818
Shelby117634
Emmet115340
Humboldt113725
Franklin109719
Guthrie109628
Palo Alto101721
Howard99722
Unassigned9720
Montgomery96936
Clarke95120
Keokuk92429
Monroe90028
Ida81832
Adair81630
Pocahontas80919
Davis76623
Monona76527
Greene73110
Lucas72221
Osceola68315
Worth6678
Taylor64112
Decatur5719
Fremont5619
Van Buren53718
Ringgold50620
Audubon4759
Wayne47221
Adams3194
Rochester/St. Mary'S
Clear
47° wxIcon
Hi: 54° Lo: 32°
Feels Like: 44°
Mason City
Clear
46° wxIcon
Hi: 62° Lo: 31°
Feels Like: 40°
Albert Lea
Clear
45° wxIcon
Hi: 61° Lo: 34°
Feels Like: 41°
Austin
Partly Cloudy
43° wxIcon
Hi: 60° Lo: 34°
Feels Like: 39°
Charles City
Partly Cloudy
41° wxIcon
Hi: 58° Lo: 33°
Feels Like: 34°
Kicking off the workweek with warmer temperatures
KIMT Radar
KIMT Eye in the sky

Latest Video

Image

Mary Kristin Scott PKG

Image

Tailgate service

Image

Fewer babies being born

Image

Sara's Sunday Night Forecast

Image

Blooming Prairie GBB PKG

Image

Sara's Saturday Night Forecast

Image

Olmsted County Fair asks for help from lawmakers

Image

RPU energy saving tips

Image

Officials hold roundtable on "reskilling" Minnesota's workforce

Image

Sen. Smith calls for COVID-19 relief bill to ensure vaccines are completely free for all

Community Events