All major U.S. stock market indexes fell precipitously in the first weeks of February, shedding more than $1 trillion in market capitalization and causing stock volatility indexes to run wild.
The Dow Jones and S&P 500 indexes officially entered into correction territory Thursday afternoon, losing 10 percent of their respective gains since January. The NASDAQ Composite index is nearing a correction — a 10 percent drop, falling 9.8 percent from its Jan. 26 high.
The benchmark index closed Thursday down 4.1 percent, or 1,032.89 points, marking the second-largest point drop in the Dow since Monday’s record-setting drop of 1,175.21 points. In total, the Dow has shed more than 2,000 points in the first week of February trading. Thursday was the fifth consecutive trading day that the Dow fluctuated more than 500 points in intraday trading, a sign of the growing uncertainty and volatility in the market. The index has, however, experienced larger percentage declines in its history.
The S&P 500 hit its 2018 peak Jan. 26, reaching 2,872.87. Following weeks have not been as kind to the index. The S&P 500 has fallen more than 10 percent since January, closing Thursday afternoon at 2,581.
Figures across the board look fairly bleak compared to what they were at the closing bell Feb. 2–the kickstart of recent downturn.
The Dow closed at 25520.96, the S&P at 2762.13 and the NASDAQ at 6,967.52.
Adding to investor concerns, the measure of stock market volatility (VIX) surged over the next month, climbing above 50 — the measure’s highest level since 2015. The VIX was above 33 Friday morning leading into the opening bell.
Discerning the root cause of the correction is nearly impossible, but the likely culprit is that investors, for the first time in nearly a decade, believe that central banks around the world will pull back on their recession-era easy money policies and raise interest rates to ensure that rapidly growing economies don’t run too “hot.”
Expectations of higher interest rates globally are not simply a hypothesis on the part of investors. Central bank chiefs around the globe are signaling, or announcing flat out, that they plan to jack up rates in 2018.
The Federal Open Market Committee announced in late January that it anticipates further rate increases in 2018, causing investors to believe that the Fed will raise interest rates more than two times this year.
The Bank of England strengthened its economic forecast Thursday and announced that it will likely have to raise interest rates both earlier and higher than it expected in November.
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