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: 918230

Reported Deaths: 15011
CountyCasesDeaths
Marion1252491952
Lake623371084
Allen52301746
Hamilton43009443
St. Joseph41155584
Elkhart32831485
Vanderburgh29698436
Tippecanoe26442247
Johnson23106414
Hendricks21708338
Porter21255340
Clark16988222
Madison16899378
Vigo15562272
Monroe14186190
LaPorte13961235
Delaware13613215
Howard13531258
Kosciusko11150134
Hancock10534159
Warrick10431174
Bartholomew10233166
Floyd10099202
Wayne9557216
Grant8858194
Morgan8654158
Boone8231109
Dubois7521123
Henry7391126
Dearborn734186
Noble7208100
Marshall7168127
Cass7060117
Lawrence6803150
Jackson638980
Shelby6386106
Gibson5999105
Harrison587984
Huntington586490
Montgomery5663101
DeKalb555691
Knox532999
Miami523183
Clinton522464
Putnam519067
Whitley509851
Steuben480267
Wabash470192
Jasper465760
Jefferson456091
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Adams435565
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Scott389563
White383457
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Clay376455
Greene375589
Wells375183
Fayette363074
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Washington324046
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Sullivan294947
Owen275961
Orange269659
Starke268961
Fulton264451
Jay248134
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Parke212020
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Pike200938
Blackford163834
Pulaski155250
Crawford140818
Benton138316
Newton138141
Brown130646
Martin124416
Switzerland122310
Warren112616
Union92211
Ohio75811
Unassigned0461

Ohio Coronavirus Cases

Data is updated nightly.

Cases: 1319265

Reported Deaths: 21265
CountyCasesDeaths
Franklin1480641537
Cuyahoga1311202313
Hamilton948871307
Montgomery647451122
Summit548531041
Lucas49502853
Butler45993649
Stark39954963
Lorain30438525
Warren29170326
Mahoning25988629
Clermont24726278
Lake24088411
Delaware21722140
Licking19822239
Fairfield19780218
Greene19671266
Medina19208285
Trumbull19195506
Clark17188321
Portage15585224
Richland15540228
Wood15187208
Allen13654254
Miami13283244
Muskingum11821148
Wayne11448234
Columbiana11100239
Tuscarawas10388264
Marion10273144
Pickaway10162128
Scioto9766124
Erie9479170
Ross8979172
Lawrence8225116
Hancock8105140
Ashtabula8083184
Geauga7976155
Belmont7791183
Jefferson7093168
Huron7087125
Union703549
Washington6823116
Athens666163
Sandusky6608132
Darke6394135
Knox6308120
Seneca6113135
Auglaize569888
Ashland5631110
Shelby555799
Mercer545188
Brown533067
Defiance5278100
Madison527368
Crawford5148113
Highland514876
Fulton508781
Clinton505379
Logan494582
Preble4788110
Putnam4733106
Guernsey439057
Williams437281
Champaign426463
Ottawa425783
Perry414051
Jackson402259
Pike367140
Morrow359149
Fayette353951
Coshocton345064
Hardin341868
Adams338864
Gallia329254
Holmes3148107
Henry312668
Van Wert299269
Hocking280467
Wyandot271858
Carroll250451
Paulding231742
Meigs197842
Monroe178649
Noble160340
Morgan153528
Harrison145740
Vinton130217
Unassigned05
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An area of high pressure will pave the way to plenty of sunshine as we round out the work week.
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