It was the scariest day on Wall Street in years.
Stocks went into free fall on Monday, and the Dow plunged almost 1,600 points -- easily the biggest point decline in history during a trading day.
Buyers charged back in and limited the damage, but at the closing bell the Dow was still down 1,175 points, by far its worst closing point decline on record.
The drop amounted to 4.6% -- the biggest decline since August 2011, during the European debt crisis. But it was nowhere close to the destruction on Black Monday in 1987 or the financial crisis of 2008. Still, for investors lulled to sleep by the steady upward climb since Election Day, it was alarming.
And the rout in U.S. markets continued to ripple around the globe. Japan's Nikkei index plunged 4% in Tuesday morning trading while the S&P/ASX 200 in Australia dropped 3%.
The White House said in a statement that President Trump was focused on "our long-term economic fundamentals, which remain exceptionally strong." The statement cited strengthening economic growth, low unemployment and increasing wages for workers.
The trouble in the market began early last week, when investors focused on a number of lingering concerns.
If the economy gets much stronger, it could touch off inflation, which has been mysteriously missing for the nine years of the post-crisis recovery. That could force the Federal Reserve to raise interest rates faster than planned.
"People are dealing with the shock of seeing real inflation for the first time in a while," said Bruce McCain, chief investment strategist at Key Private Bank.
The sell-off wiped out the Dow and S&P 500 gains for the year, and left the Nasdaq barely in positive territory for 2018.
Related: Market mayhem puts Trump in a tough spot
Investors have also been nervously watching the bond market, where yields have been creeping higher. As yields rise, bonds offer better returns, which makes them more attractive to investors compared with risky stocks.
Stocks sank throughout the day, then went off a cliff in the final hour of trading. The Dow was down 800 points at 3 p.m. Within minutes, it was down 900, 1,000 -- and then 1,500 points. At its low, the Dow was down 1,597 points, before buyers rushed in and limited the decline.
The Nasdaq slumped more than 2%, quickly turned positive, then sank again. It finished down almost 4%. The S&P 500, a broader gauge of the market than the Dow, declined more than 4%.
The plunge pushed stocks closer to what's called a correction, or a 10% decline from their most recent high point. The S&P 500 is down almost 8% from its all-time high.
"The stock market is throwing a tantrum," said Andres Garcia-Amaya, CEO of wealth management firm Zoe Financial.
"Take a deep breath," said Garcia-Amaya. "I know it's been a while since we had a day like today, but nothing has really changed from a fundamental standpoint."
The market started 2018 with a bang, but last week was the worst on Wall Street in two years. The selling gathered steam on Friday when the Dow plunged 666 points, or 2.5%, at the time its worst day since the Brexit mayhem of June 2016. Nearly $1 trillion of market value was erased from the S&P 500 last week.
"You had a market that was overbought and ripe for something to undermine its tranquility," said Mark Luschini, chief investment strategist at Janney Capital.
The VIX volatility index, a measure of market turbulence, skyrocketed a record 116% on Monday to the highest level since August 24, 2015, the last time the Dow plunged 1,000 points in a day. The spike signifies how calm Wall Street had been -- and how unprepared the markets were for trouble.
CNNMoney's Fear & Greed Index is flashing "fear," underlining a major shift in market sentiment from a week ago when it was sitting in "extreme greed."
The Russell 2000, an index of smaller stocks that have heavy exposure to the U.S. economy, turned negative for 2018 for the first time.
"Valuations got stretched and that led to a cascading effect today," said Sam Stovall, chief investment strategist at CFRA Research. "The market has to correct itself -- a resetting of the dials -- before this bull market can continue."
Related: Good news for Main Street is freaking out Wall Street
Investors' main concern is the sell-off in the bond market. The 10-year Treasury yield, which moves opposite price, spiked to a four-year high of 2.85% on Friday. It's a dramatic swing from 2.4% at the start of 2018. Higher yields could make normally boring bonds look more attractive when compared with risky stocks.
The U.S. economy is healthy. Friday's jobs report showed that wages grew at the fastest pace since 2009. That's a welcome shift by workers who have been dealing with anemic raises for years.
Has your paycheck gotten bigger thanks to the new tax bill? Will it make a difference? If so, what will you do with the extra money? Tell us about it here.
However, Wall Street is starting to get worried that the "goldilocks" environment of slow growth and mysteriously low inflation may be ending. Besides the fear of faster inflation and interest-rate increases, more robust wage gains could eat into record-high corporate profits.
No matter the cause, the stock market was long overdue to take a breather. Before Friday, the S&P 500 had gone the longest stretch ever without a 3% pullback. Now the S&P 500's record-long period without a 5% retreat is in jeopardy.
Related: This is why the Dow is plunging
While they can be scary, market pullbacks prevent stocks from overheating and give investors who were stuck on the sideline a chance to get in. Janet Yellen, who just stepped down as Fed chief, told PBS on Friday that she still believes "asset valuations generally are elevated."
Despite the recent turmoil, the Dow remains up almost 40% since President Trump's election. The robust performance has been driven by strong corporate profits, healthy economic growth and excitement about the Republican tax cut for businesses.
Analysts at Bespoke Investment Group urged calm.
"Take a deep breath," the firm wrote in a research note on Friday. "For those investors that may have forgotten, this is what a market decline feels like."
The question is whether the market retreat deepens or whether investors buy at the dip, a mentality that has supported stocks for months.
"The fundamentals of the economy remain quite strong," said Janney's Luchini. "It's hard to make the case for why we should be down more than 10% -- unless we encounter negative economic news."
Key Bank's McCain agrees. "We believe this is not the beginning of the end and a tilt towards a bear market. It's premature for that," he said.
Wells Fargo suffered some of the worst of the selling on Monday. The No. 2 U.S. bank plunged 9% after unprecedented sanctions were handed down by the Fed late Friday.
--CNN's Liz Landers contributed to this report.
Stock markets Dow Jones suffers worst day in over six years as global stock markets plunge The Dow Jones industrial average dropped 4.6% as investors fled amid fears of rising interest rates: ‘This was volatility unleashed’ Stock market sell-off: live updates
Traders on the floor of the New York stock exchange on Monday, when the Dow Jones plunged. Photograph: Richard Drew/AP
US stocks took a further steep plunge on Monday, with the Dow Jones industrial average dropping 1,175 points, the largest one-day points fall on record and erasing all the gains made so far this year.
Why are global stock markets falling? Read more
The drop came after another bad day on global markets as investors reacted to global equity losses overnight and concern that central banks will increase interest rates in response to inflationary pressures from surging global economies.
The Dow dropped 1,600 points in one instance before bouncing back. The index is now off more than 1,800 points over two days of trading. Global stock markets have shown little volatility over the last few years amid a period of unprecedented low interest rates that followed in the wake of the great recession.
But on the day that new Federal Reserve chair, Jerome Powell, took office, replacing Janet Yellen, that quiet period seemed to be over.
“This was volatility unleashed,” said Jack Ablin, chief investment officer at at Cresset Wealth. “It’s partially fear of interest rates, partially this new Fed chairman Jerome Powell, partially the market is overvalued relative to fundamentals.”
While market fear may not be based in any change in economic fundamentals, in its last meeting under chair Yellen, the Federal Reserve indicated it expects inflation pressures to increase through the year.
According to projections released in December, officials expect three rate hikes in 2018 – so long as market conditions remain broadly as they are – but some economists believe the central bank could add another increase at its final meeting of the year.
If the market falls continue they could prove problematic for Donald Trump who has consistently touted record high stock markets as proof that his presidency is boosting the economy.
US stocks have now lost $1tn in value in the first five days of February. However, the White House, responding to the market drop insisted on Monday night that long-term economic fundamentals “remain exceptionally strong”.
Donald J. Trump (@realDonaldTrump) Dow, S&P 500 and Nasdaq all finished the day at new RECORD HIGHS! pic.twitter.com/wJyB9d00hh
The plunge, initially triggered by fears that strong US employment numbers would lead to wage demands and rising inflation, represents the first two-day drop of 1,000 points or greater for the Dow since August 2015.
The sell-off was reflected on other US indexes, with the S&P 500 also recording its steepest drop since 2015 and erasing its gains for the year. The sell-off represents a stark turnaround in market sentiments, said Ablin.
“In the middle of last month, optimism, bullishness and complacency was at an all-time high. It’s certainly fearful now,” said Ablin.
In London, shares in Britain’s top 100 publicly listed companies on Monday suffered their worst single-day slump since Theresa May called the snap election last April.
The index of Britain’s top 100 companies stretched its longest losing streak since last November into a fifth day, following a 1.3% fall. The FTSE 100 index tumbled to 7,345, having peaked at almost 7,800 last month.
Why are global stock markets falling? Read more
Hussein Sayed, the chief market strategist at currency dealer FXTM, said investors were nervous about the prospect of higher interest rates. “The era of cheap money is ending, and for markets who got addicted to it, it’s undoubtedly bad news,” he said.
The Fed is expected to react to survey data published last week showing that average US wage growth hit 2.9% in January and could go above 3% in the next few months. Wage increases are one of the main components pushing up prices in US shops.
Stock markets remain high globally and the economies of most of the world’s biggest countries are robust. But fears about the pace of rate increases and the size of the US’s ballooning deficit have worried some investors.
Last week, a member of the Fed’s main interest-rate setting committee, Robert Kaplan, suggested that rates could increase by more than 0.75 percentage points this year if the economy maintains its fast rate of growth and wages continue to rise strongly. He said: “You will see some inflation pressure this year. I believe that the Fed should be removing accommodation gradually but deliberately.”
Mark Haefele, the global chief investment officer of wealth management at UBS, said the bond market, which trades in government and corporate debt, remained steady despite recent declines in values that increased the likelihood of defaults. He said stock market investors should sit tight while bond yields, which measure the risk attached to each bond, remained modest. “We don’t believe that now is a time to reduce exposure to stocks.”
Greg McBride, chief financial analyst at Bankrate, said: “Markets have been addicted to low interest rates and global central banks pumping money into the financial system. As economies around the world are improving, this means higher interest rates and less stimulus from central banks. That’s why investors are throwing a hissy-fit. Not because anything is wrong.”
Far eastern markets fell overnight by the most in over a year, with the Nikkei among the worst affected following a 2.5% drop to 22,682. The price of a barrel of Brent crude oil slid to $67.30 from above $70 in the middle of last month. The FTSE’s fall was limited by worse than expected economic data that sent the pound down to $1.40 from $1.42 overnight.
Car registrations in the UK slumped by 6% in January and the Markit/CIPS survey of the services sector recorded its worst level of growth for 16 months.
Many of the UK’s biggest businesses earn the majority of their income in dollars and any increase in the dollar’s value versus the pound increases their profits. Last month, Trump boasted that the stock market was a measure of his successful first year in office.
When the market reached 25,075 on 5 January, an increase of more than 1,000 points in little over a month, He said: “Record fastest 1000 point move in history. This is all about the Make America Great Again agenda! Jobs, Jobs, Jobs. Six trillion dollars in value created!”
NEW YORK, KOMPAS.com - Saham- saham di bursa efek New York AS berguguran pada perdagangan Senin (5/2/2018) waktu setempat atau Selasa (6/2/2018) WIB . Aksi jual ini merupakan imbas kekhawatiran investor akan kenaikan suku bunga acuan AS.
Indeks Dow Jones Industrial Average anjlok 1.175,21 poin ke level 24.345,75. Bahkan sempat melemah 1.500 poin.
Sementara Indeks S&P 500 melemah 4,1 persen, pelemahan sehari terbesar sejak Agustus 2011 dan ditutup pada level 2.648,94. Indeks tersebut sempat berada dalam zona positif, didorong oleh sektor teknologi yang sempat menguat.
Adapun indeks Nasdaq Composite melemah 3,8 persen ke level 6.967,53 setelah sempat menguat 0,5 persen. Penguatan pada saham Apple dan Amazon membantu indeks Nasdaq terhindar dari pelemahan lebih dalam.
Baca juga: Koran Ekonomi Wall Street Journal Tutup Edisi Cetak di Asia dan Eropa
"Aksi jual, dalam skema yang lebih besar, sebenarnya tidak sebesar itu. Namun, ini penting dalam hal psikologis," kata Quincy Krosby, chief market strategist di Prudential Financial.
Sejak pekan lalu, pasar saham tertekan oleh cepatnya kenaikan suku bunga. Acuan imbal hasil obligasi 10 tahun naik ke level tertinggi dalam 4 tahun.
Padahal, pada awal tahun ini, pasar saham melaju tinggi. Indeks Dow Jones dan S&P 500 menikmati penguatan bulanan tertinggi sejak Maret 2016 pada Januari 2018 dan indeks Nasdaq mencatat penguatan bulanan tertinggi sejak Oktober 2015.
Pasar ekuitas diuntungkan dari kuatnya data ekonomi dan kinerja keuangan korporasi yang solid. Namun, kekhawatiran meningkatnya inflasi telah mendorong suku bunga naik lebih tinggi.
Image copyright Getty Images
US stocks suffered their worst falls in more than six years on Monday in a sell-off sparked by concerns of higher interest rates.
The Dow Jones Industrial Average index tumbled 1,175 points, or 4.6% to close down at 24,345.75.
The White House moved to reassure investors saying it was focused on "long-term economic fundamentals, which remain exceptionally strong".
Signs of improvement in the economy had driven US markets to record highs.
Ever since he was elected in November 2016 President Donald Trump has tweeted a number of times about the increase in US stock markets, using the gains since he took office to illustrate market improvement.
"Economic news from the US has been stronger than anticipated," said David Kuo, chief executive of financial services advisory Motley Fool.
"So, perversely, the market correction has been caused by positive economic news".
Monday's decline is the largest decline in percentage terms for the Dow since August 2011, when markets dropped in the aftermath of "Black Monday" - the day Standard & Poor's downgraded its credit rating of the US.
What has the reaction been?
The drop on the Dow was closely followed by the wider S&P 500 stock index, down 4.1% and the technology-heavy Nasdaq, which lost 3.7%.
In London, the FTSE 100 index of leading companies also fell to close down 1.46% or 108 points lower.
In Tuesday's early Asian trade, stocks were following Wall Street's lead. Japan's benchmark Nikkei 225 sank 4.8% before recovering slightly, while Australia's benchmark S&P/ASX 200 was down 2.7%. In South Korea, the Kospi lost 2.3%.
Asian markets are following Wall Street's lead - but why?
Why is this happening?
Investors are reacting to changes in the outlook for the American and global economy, and what that might mean for the cost of borrowing.
The stock market sell-off accelerated on Friday when the US Labour Department released employment numbers which showed stronger growth in wages than was anticipated.
CMC Markets analyst Michael McCarthy said the wage numbers "blew lower interest rates out of the water".
"The share selling....reflects a higher than previously anticipated interest rate environment," Mr McCarthy said.
In response to that, investors moved to sell out of stocks and put money into assets like bonds which benefit from higher interest rates.
"This isn't a collapse of the economy. This isn't a concern that markets aren't going to do well," said Erin Gibbs, portfolio manager for S&P Global Market Intelligence.
"This is concern that the economy is actually doing much better than expected and so we need to re-evaluate," she said.
What has driven the Dow's surge?
Stronger global growth has prompted central banks in Europe, Canada and elsewhere to ease away from policies put in place to stimulate the economy after the financial crisis.
What impact will this have?
Analysts say investors should be prepared for choppier stock markets in the months ahead.
But the Dow closed Monday having shed about a third of its gains since Mr Trump took office in January 2017.
It marks a dramatic turnaround from January, when it raced past the 25,000 and 26,000 point milestones in less than a month.
Joel Prakken, chief US economist for IHS Markit, predicts share price gains will be limited over the next two years.
But he added that markets would need to deteriorate more significantly for him to start to worry about the broader economy.
"The difference between this year and last year is we're going to see more periods of volatility like this as the market reacts to higher inflation," he said.
"We're just not used to it because it's been so long since we've had a significant correction."
What does it mean for investors?
Investors have been bracing for a downturn after months of seemingly unstoppable gains.
Amid the market plunge on Monday, websites for several large money management companies suffered slowdowns or crashes.
Wall Street firms also said they have been fielding calls from people worried about their investments.
Analysis: By Anthony Zurcher, BBC North America reporter
Image copyright Getty Images Image caption Jerome Powell was sworn in as the new chairman of the US Federal Reserve on Monday
Boasting about stock market gains is a dangerous game that most presidents avoid playing. Barack Obama did it occasionally, but only after the US economy had climbed significantly from the wreckage of the 2008 collapse.
After warning of a market bubble during the campaign, however, Donald Trump became the Dow Jones's biggest cheerleader- in tweets, at rallies and even during last week's State of the Union address. That set up the jarring visual of the president boasting about the benefits of his tax cuts in a speech as the markets headed south.
US cable news channels, which had been airing the president live, cut into their coverage to report on the record-setting day. It was a highly visible hiccup in the recent US economic success story that will be hard for most Americans to miss.
The president will make the case that the fundamentals in the economy are still strong. Wages are up and unemployment is down - possibly contributing to stock drop. If growth continues, this could be chalked up as yet another rhetorical mis-step by a non-politician.
If it's the beginning of a larger correction in an election year, however, the president's words could come back to haunt him.
