CLOSINGS: View Closings

This is why the Dow is plunging

Stocks were pummeled on Friday and Monday. The ...

Posted: Feb 6, 2018 11:03 AM
Updated: Feb 6, 2018 11:03 AM

Stocks were pummeled on Friday and Monday. The Dow fell more than 1,800 points over two sessions. Here's what's going on.

1. Concerns that the Fed will raise rates

Stocks have been rising steadily since the election in part because the economy is so strong. Unemployment is historically low, and there are more open jobs than people to fill them.

Companies are starting to pay workers more to retain existing employees and attract new hires. Businesses will eventually have to raise prices on the stuff they sell to afford their growing payrolls. In economics, that's called inflation.

Though the economy has been growing steadily for almost nine years, inflation has remained stubbornly and mysteriously low. The Federal Reserve combats inflation by raising its interest rates. The central bank has been unable to significantly raise its interest rates over the past decade, fearing it could stymie the economic recovery and perhaps cause prices to fall.

The Fed planned on raising interest rates slowly this year -- just three times in 2018. But if inflation picks up, the Fed could raise rates more often and more steeply than it had planned.

2. Rising interest rates

When the Fed raises rates, the cost of borrowing money increases. That means companies have to pay more for their loans, which cuts into corporate profits. It also means Americans will pay more for mortgages and loans.

Another reason the stock market has risen so much over the past year has been the steady growth in corporate profits. Companies are healthy, and investors have rewarded them by pushing up their stock prices.

When interest rates rise sharply, stocks often fall. Investors worry that businesses' profit parade will slow down.

3. Worries about the bond market

Stocks have also been on a tear because they have been one of the only investments with a decent return. U.S. Treasury bond yields have been so low that many stock dividends are paying better.

But stocks are a higher-risk investment than bonds, which are backed by the United States Treasury. If bond yields start to rise, investors will want to take some of their money out of stocks and put it into safer bonds.

Sure enough, bond yields hit a four-year high Friday. (They pulled back a bit on Monday.) The recent tax bill has forced the Treasury to borrow more money, which will put more bonds into play. A supply glut could devalue bonds. Prices and yields move in opposite directions, and bond buyers will want a higher yield (and lower price) to make it worth their investment.

Inflation is bad for bonds, too. If borrowing costs increase, bond investors will want more return -- a higher yield.

Attractive yields on a safer investment have made stocks suddenly less attractive.

4. Too far, too fast

Stocks have been rising pretty much in a straight line since November 2016, and that's not exactly healthy. Stock market analysts believe the stock market is long overdue for a 5% pullback or even a 10% correction.

A cooling-off period would be a good thing. It would make stocks cheaper and more attractive to investors, especially if the underlying companies are healthy, cranking out strong sales and profits.

The market finally began to come down to earth -- just a bit -- this week, and investors wonder whether this is the beginning of a correction. There could be a little groupthink taking place in the downturn.

Indiana Coronavirus Cases

Data is updated nightly.

Cases: 1462456

Reported Deaths: 20308
CountyCasesDeaths
Marion2005922494
Lake992001456
Allen903391005
Hamilton70705539
St. Joseph63078746
Elkhart48098622
Vanderburgh46217523
Tippecanoe42115330
Johnson37119516
Hendricks35078455
Porter33900460
Madison28036530
Clark25186321
Vigo24768341
LaPorte22894307
Monroe22201243
Howard21344372
Delaware20937363
Hancock18289217
Kosciusko17513199
Bartholomew17399212
Warrick16060212
Wayne15757296
Floyd15399252
Grant14898293
Morgan13934230
Boone13172136
Noble11421140
Dearborn11355112
Henry11312201
Shelby11231150
Marshall11041166
Dubois10782152
Jackson10174104
DeKalb9944128
Cass9942142
Lawrence9914219
Huntington9823139
Gibson9131125
Montgomery9005140
Knox8762124
Harrison8718111
Whitley844771
Steuben8340102
Jasper8069113
Putnam795197
Clinton792994
Miami7914133
Wabash7598138
Jefferson7551124
Ripley6993111
Adams6508101
Scott629086
Daviess6266127
White602379
Greene5913111
Clay587173
Wells5814120
Decatur5754118
Jennings572276
Fayette5657121
Posey529146
LaGrange512996
Randolph4925128
Washington482067
Owen480398
Fountain463579
Spencer438156
Starke434086
Sullivan432164
Fulton426790
Orange412682
Jay403964
Rush395736
Carroll371349
Franklin369850
Perry362155
Vermillion345062
Pike308945
Tipton307974
Parke305038
Pulaski266973
Blackford266755
Newton228359
Brown222654
Benton213321
Crawford211231
Switzerland189414
Martin181921
Warren169520
Union163619
Ohio119516
Unassigned0742

Ohio Coronavirus Cases

Data is updated nightly.

Cases: 2403645

Reported Deaths: 30922
CountyCasesDeaths
Franklin2596932036
Cuyahoga2572672998
Hamilton1666711699
Montgomery1103831586
Summit1066861382
Lucas895171149
Butler78647924
Stark747301383
Lorain62885783
Warren49934468
Mahoning49735909
Lake46850586
Clermont43541428
Delaware38876210
Trumbull38576748
Medina37611416
Licking36901401
Fairfield33848331
Greene32124416
Portage31381356
Clark30277440
Richland28251420
Wood27660289
Allen24372392
Miami22806389
Muskingum22298244
Columbiana22095399
Wayne21275354
Tuscarawas18847423
Erie18041221
Ashtabula17932338
Marion17503231
Scioto16553203
Ross16163249
Pickaway15536173
Hancock15251227
Geauga15244221
Lawrence13847186
Huron13399182
Union1329683
Belmont13255247
Jefferson12864257
Sandusky12770197
Athens11949106
Knox11511195
Seneca11454200
Ashland10795174
Darke10673196
Washington10564168
Auglaize10152141
Crawford9854175
Shelby9699155
Brown9400140
Fulton9235148
Guernsey9109115
Defiance9057134
Highland9035143
Logan8955141
Clinton8719121
Mercer8640111
Madison8568104
Preble8002160
Williams7848135
Putnam7731135
Ottawa7629120
Champaign7556112
Jackson7383114
Perry714598
Coshocton7043136
Morrow694580
Fayette662287
Hardin6219125
Pike617086
Gallia594989
Adams5779124
Van Wert5779120
Henry565592
Hocking5521103
Carroll4828100
Wyandot482289
Holmes4747161
Paulding401163
Meigs375071
Monroe299368
Noble279851
Harrison279461
Morgan276848
Vinton239845
Unassigned08
Fort Wayne
Cloudy
35° wxIcon
Hi: 35° Lo: 24°
Feels Like: 26°
Angola
Cloudy
32° wxIcon
Hi: 34° Lo: 23°
Feels Like: 26°
Huntington
Cloudy
36° wxIcon
Hi: 38° Lo: 23°
Feels Like: 28°
Decatur
Cloudy
35° wxIcon
Hi: 37° Lo: 24°
Feels Like: 26°
Van Wert
Cloudy
33° wxIcon
Hi: 36° Lo: 24°
Feels Like: 22°
A gusty northwest wind ushers in another round of Arctic air which lingers for the rest of the workweek.
WFFT Radar
WFFT Temperatures
WFFT National

Community Events