Dow, S&P 500 suffer worst one-day fall in five months

Javier Stokes
February 2, 2018

Art Hogan, chief market strategist at B. Riley FBR said: "We've had a unilateral move higher [in stocks] to start things off and people are realising this is not sustainable".

Few will disagree that valuations are overstretched, however, due to low global interest rates, equities have remained attractive during the past couple of years. The Dow Jones Industrial Average closed at 26,076.89 for a loss of -362.59 points or -1.37%. "It doesn't mean that stocks will drop off a cliff", she said, noting that more volatility is tied to "uncertainty about the pace of economic growth" and earnings growth.

The S&P 500 posted 34 new 52-week highs and 3 new lows; the Nasdaq Composite recorded 82 new highs and 48 new lows.

The Dow climbed more than 200 points on Wednesday morning, signaling that the sell-off earlier this week may have been a blip instead of the start of a more serious downturn.

Shares of Apple fell as much 2.6 percent after the Nikkei reported the company will cut production of its flagship gadget in half.

In other news, the CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, rose 24.3 percent, or 2.7, to 13.77.

"Investors are catching up to the fact that rates have risen", said Jonathan Mackay, investment strategist at Schroders. Market expectations for a rate hike are 5.2 percent, according to the CME Group's FedWatch tool.

But yields have gained more recently, as the USA has raised interest rates.

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"Investors are getting a bit anxious about inflation which has led some people to believe that the Fed might be more aggressive when it comes to raising rates", said Robert Pavlik, chief investment strategist at SlateStone Wealth.

The S&P health sector tumbled 1.9 percent, the most among the 11 major sectors and set for its biggest one-day drop since October 2016, with all categories of companies dropping. The Japanese yen strengthened 0.17 per cent versus the greenback at 108.79 per dollar.

Later this week, investors are looking ahead to the Federal Reserve's two-day monetary policy meeting, as well as President Donald Trump's first State of the Union address and data on manufacturing and unemployment.

Among earnings, Pfizer shares fell 3.3 percent.

Harley-Davidson dropped 8.1 percent after the motorcycle maker forecast a drop in shipments this year. You got negative news on the Apple iPhone X sales.

Declining issues outnumbered advancing ones on the NYSE by a 4.65-to-1 ratio; on Nasdaq, a 2.16-to-1 ratio favored decliners.

Eversource Energy fell $1.63, or 2.5%, to $62.44, while CenterPoint Energy lost 73 cents, or 2.6%, to 27.73.

Factors such as an expanding USA economy, growth in corporate profits, and enthusiasm over recently enacted tax cuts and other business-friendly policies have helped to support stock buying.

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