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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 11:14 AM
Updated: Feb 10, 2018 11:14 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.

Indiana Coronavirus Cases

Data is updated nightly.

Cases: 749532

Reported Deaths: 13746
CountyCasesDeaths
Marion1030911775
Lake554681006
Allen41636691
St. Joseph36947564
Hamilton36527416
Elkhart29363459
Tippecanoe22862225
Vanderburgh22542400
Porter19331325
Johnson18405388
Hendricks17588317
Clark13200193
Madison13120344
Vigo12604253
LaPorte12394221
Monroe12163175
Delaware10947198
Howard10263225
Kosciusko9614119
Hancock8549144
Bartholomew8162157
Warrick7854156
Floyd7772180
Grant7229179
Wayne7155201
Boone6917103
Morgan6736141
Dubois6211118
Marshall6206116
Cass5991108
Henry5894108
Dearborn588978
Noble580186
Jackson508674
Shelby500897
Lawrence4732121
Gibson444093
Harrison440773
Clinton440055
DeKalb438785
Montgomery434690
Whitley406042
Huntington402281
Steuben399259
Miami392768
Jasper386954
Knox375790
Putnam372160
Wabash360583
Ripley346570
Adams344955
Jefferson335685
White330253
Daviess3031100
Wells295181
Decatur289992
Greene286385
Fayette284864
Posey273735
LaGrange272872
Scott269955
Clay265848
Washington244934
Randolph244683
Jennings235149
Spencer234231
Starke227558
Fountain218647
Sullivan213943
Owen211058
Fulton201542
Jay200932
Carroll193420
Orange188055
Perry186937
Rush175726
Vermillion173644
Franklin170235
Tipton165846
Parke149016
Pike138034
Blackford136132
Pulaski120247
Newton112736
Brown103943
Crawford102316
Benton101014
Martin91515
Warren83615
Switzerland8098
Union72810
Ohio57811
Unassigned0420

Ohio Coronavirus Cases

Data is updated nightly.

Cases: 1107225

Reported Deaths: 20091
CountyCasesDeaths
Franklin1285061459
Cuyahoga1156322204
Hamilton812991245
Montgomery524951040
Summit48356999
Lucas43309817
Butler38903603
Stark33297929
Lorain25641502
Warren24558303
Mahoning22332601
Lake21139385
Clermont20098252
Delaware18819135
Licking16649222
Fairfield16564204
Trumbull16527479
Medina15597270
Greene15256246
Clark14223306
Wood13281197
Portage13229214
Allen11903239
Richland11598211
Miami10837223
Wayne9116222
Columbiana9023230
Muskingum8889135
Pickaway8652122
Tuscarawas8639247
Marion8635138
Erie8052164
Ashtabula7139179
Hancock6996131
Ross6934161
Geauga6832150
Scioto6530104
Belmont6149174
Union583849
Lawrence5723102
Jefferson5669158
Huron5539122
Sandusky5437125
Darke5415129
Seneca5344126
Washington5308109
Athens523360
Auglaize501687
Mercer487285
Shelby476295
Knox4568112
Madison443765
Ashland435197
Putnam4334103
Fulton431871
Defiance431798
Crawford4033110
Brown401961
Logan387377
Preble3847103
Clinton378566
Ottawa372781
Highland359465
Williams347878
Champaign343858
Guernsey324253
Jackson317554
Perry297150
Morrow291340
Fayette285350
Hardin274865
Henry273267
Holmes2699101
Coshocton268459
Van Wert247264
Adams242956
Pike242735
Gallia240550
Wyandot234556
Hocking220162
Carroll196948
Paulding176342
Meigs148240
Monroe136144
Noble135839
Harrison113738
Morgan109624
Vinton85417
Unassigned03
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It'll be another pleasant day with sunshine and highs in the upper 70s.
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