Wall Street just suffered the worst day of the Trump presidency.
The Dow closed down 666 points, or 2.5%, its biggest percentage decline since the Brexit turmoil in June 2016 and steepest point decline since the 2008 financial crisis.
A strong jobs report showed wage growth is finally starting to pick up. That's great news for workers, but it reinforced investors' concern about inflation and the bond market.
"It's all about rates. Asset prices and the economy have become addicted to low rates," said Peter Boockvar, chief investment officer at the Bleakley Financial Group. "Sentiment got euphoric. There is more froth that needs to be taken off."
The sell-off knocked the Dow well below 26,000. Both the Dow and S&P 500 suffered their biggest weekly drops since early 2016 -- roughly 4% each.
Political turmoil is adding to the uncertainty. Market analysts pointed to the clash between the Trump administration and the FBI as another concern.
"There looks like a breakdown of the institutions in our country," said Ian Winer, head of equities at Wedbush Securities. "No matter what side you're on, that's not good."
While the point decline on the Dow was large, it paled in comparison with the scary days of the financial crisis. Friday's decline was 2.5%. The Dow plummeted nearly 8% on a single day in October 2008.
The stock market is much calmer these days, thanks to a strong economy, record corporate profits and the huge business tax cut enacted by President Trump and Republicans in Congress.
Even with this week's slump, the S&P 500 is just 3.9% below its all-time high.
But the tranquility that has defined Wall Street's stunning rally since the election has been punctured. The VIX (VIX), a measure of market volatility, soared 55% this week.
Related: Alan Greenspan - 'We have a stock market bubble'
January's jobs report didn't settle the market down. The economy added 200,000 jobs in January, and wages grew at the fastest pace in eight years.
But if wages grow too fast, they could eat into Corporate America's record profit margins.
The other concern: Wage growth could be a sign that inflation, which has been mysteriously low for years, may heat up. That would force the Federal Reserve to raise interest rates faster than investors may be comfortable with.
Those worries are showing up in the bond market. The 10-year Treasury yield reached a four-year high of 2.85% on Friday. It was at about 2.4% at the start of the year.
Some investors are worried rates could climb high enough to slow the economy by raising borrowing costs. They also worry that higher returns on bonds will make stocks look less attractive by comparison.
"Those rising rates are making it harder to say there is no alternative to stocks," said David Kelly, chief global strategist at JPMorgan Funds.
Former Fed Chairman Alan Greenspan said this week that both stocks and bonds are in a "bubble."
Related: Are GE's days on the Dow numbered?
Of course, this week's slide does little to dent the overall gains the market has achieved since President Trump's victory. The Dow and the Nasdaq have climbed more than 40% apiece since the 2016 election. The S&P 500 has advanced for 10 consecutive months. That hasn't happened since 1959.
Even stock market bulls have long said that a pause -- or even a dip -- would help prevent the market from overheating.
"We've just gone too far, too fast," said Art Hogan, chief market strategist at B. Riley FBR. "We had this perfection of 2% higher every week -- and that really is just not reality."
Some market analysts said the political controversy over the release of the disputed GOP memo is rattling Wall Street. "You've got trouble in the Department of Justice and the FBI at the senior level," said Jeffrey Saut, chief investment strategist at Raymond James.
"It all hit when the market was ready to go down anyway. It just accelerated it," Saut said.
Wedbush's Winer said the biggest risk is that Robert Mueller, the special counsel investigating Russian interference in the election, is fired.
"If Bob Mueller is challenged in a firing, or a prelude to a firing, then you're going to have a problem," he said.
Other market analysts think Friday's drop has little to do with Washington.
"We're not drawing a connection between the political headlines and the market. Valuations for stocks are high, and we were due for a pullback," said Luke Tilley, chief economist for Wilmington Trust.
Related: Here's who's getting a raise these days
The latest corporate earnings, which typically drive stock prices, left the markets unimpressed.
Shares of Google parent Alphabet (GOOGL) slumped 5% even after the tech behemoth posted its first $100 billion sales year. Disappointing iPhone sales left Apple (AAPL) down 4%. ExxonMobil (XOM) sank 5% after its results widely missed expectations.
Selling was widespread. Amazon was one of just 27 stocks in the S&P 500 to finish the day higher.
"You've had a stock market that's gone absolutely crazy based on tax reform juicing earnings," said Winer. "And numbers are coming in that are OK, but not blowing the doors off."
The question now is whether this market turmoil will persist into next week, or whether investors have been waiting on the sidelines come in to buy after the dip.
Tilley said his team expects there will finally be a full-blown correction -- a 10% pullback from the recent highs.
"But don't expect a bear market unless there's an actual downturn in the economy," Tilley added.
--CNNMoney's Chris Isidore and Paul R. La Monica contributed to this report.
Stock markets Dow Jones suffers worst fall in two years amid fears of interest rate rise Apple, Visa and Exxon among biggest fallers as American and European stock markets tumble from record highs Grim faces on the floor of New York Stock Exchange on Friday. Photograph: Richard Drew/AP
Wall Street ended its worst week in two years on Friday with another sharp fall as markets in Europe also continued to tumble from the record-high levels reached less than a month ago.
Investors headed for the exits amid growing fears over a bond market rout, triggered by early signs of inflation in the US as economic growth accelerates and wages appear to finally be rising after years of stagnation. US government bond yields, which rise as prices fall, hit the highest level since January 2014.
The Dow Jones Industrial Average fell 665 points to end the day down more than 2.5% and falling below 26,000, the record level it hit on 17 January. The sell-off came after the US labor department released a better than expected monthly jobs report, sparking fears of a sharper rise in interest rates. It was the first time since June 2016 that the Dow had fallen more than 500 points.
Amid a widespread sell-off, the biggest fallers were Apple, Visa and oil firms Exxon and Chevron.
In Europe, the FTSE 100 recorded its worst week since April last year when Theresa May called the snap election, dropping by 47 points to 7,443, while Germany’s Dax fell 1.7%.
The worst week for stocks under Donald Trump comes after one of the best years in history for shares in 2017 and just a week after the Dow hit a record high of 26,617.
Some investors called the tail-end of the bull market a “melt-up” – with US shares continuing to rise despite looking overpriced by traditional yardsticks, warning it was a last hurrah before a downward correction or crash.
The latest sell-off comes amid stronger signals for the health of the global economy, which investors fear could fuel higher levels of inflation that would prompt central banks to raise interest rates. Investors said the drop could be a sign of the market returning to more typical periods of peaks and troughs after abnormally calm conditions last year.
Ken Odeluga, market analyst at City Index, said: “As one of the best-ever Januarys for US equities ends in an upsurge of volatility, the beginning of February threatens to bring edgier conditions than investors have grown accustomed to.”
Figures from the US job market on Friday showed wages rising at the fastest annual rate since 2009, as the American economy created 200,000 new jobs last month – a better performance than had been expected by economists. Improving levels of pay could lead companies to hike their prices to compensate for higher wage bills – leading to an inflationary spiral.
Analysts said the Federal Reserve now looks increasingly likely to raise interest rates next month when its panel of rate-setters meets for the first time under new chairman Jerome Powell. “It is hard to argue against a March Fed rate hike now,” said James Knightley, chief international economist at ING Bank.
The stronger picture for economic growth in the US also triggered a rally for the dollar on international exchanges, with the pound falling by about 1% against the American currency.
Despite the warning signals flashing for global stock markets, economists said the drop in equity prices may be a short-term trend if the world economy can continue to expand without generating too much inflation and if central banks do not hike interest rates more than anticipated.
But a number of risks lurk in the background, including rising tensions over trade between the Trump White House and the rest of the world, or the re-emergence of geopolitical tensions or from rising indebtedness in China.
NEW YORK (Reuters) - Worries about the impact of a tightening job market on the prospects for inflation and a surge in bond yields sent investors fleeing equities on Friday, with the Dow Jones Industrials Average swooning almost 666 points, for its biggest daily percentage loss in 20 months.
It was the biggest daily point fall in the Dow since December 2008 during the financial crisis.
With Friday’s rout, Wall Street’s three major indexes logged their biggest weekly losses in two years, after closing at record highs the previous week. The S&P 500 and Dow saw their worst weeks since early January 2016 while Nasdaq had its worst week since early Feb 2016.
“People are starting to really get increasingly uncomfortable with the rapid rise in interest rates that we have seen and the uncertainty of how that is actually going to start to play out relative to competition for stocks,” said Chuck Carlson, chief executive officer at Horizon Investment Services in Hammond, Indiana.
Overnight stock price losses accelerated after the U.S. Labor Department reported employment grew more than expected in January with the biggest wage gain in more than 8-1/2 years. The picture of workers commanding higher salaries fueled expectations that inflation is on the rise, which could prompt the Federal Reserve to take a more aggressive approach to rate hikes this year.
That caused the 10-year Treasury yield to surge to 2.8450 percent the highest since Jan. 2014, which could make returns on Treasuries look more attractive relative to stocks.
But market players are not convinced that the bull market in stocks that that saw the S&P 500 rise 5.6 percent in January is over. In fact many say a pull back was overdue.
“You have a jobs report today that was pretty robust all kind of feeding into the higher interest rates, greater inflation story, and I think the markets are trying to grapple with that right now,” said Carlson.
The Dow Jones Industrial Average .DJI fell 665.75 points, or 2.54 percent, to 25,520.96, the S&P 500 .SPX lost 59.85 points, or 2.12 percent, to 2,762.13 and the Nasdaq Composite .IXIC dropped 144.92 points, or 1.96 percent, to 7,240.95.
S&P 500 e-mini stock futures EScv1 extended losses after 4 p.m. ET close in the cash market. S&P 500 futures closed down 2.3 percent, the biggest daily percentage drop since September 2016.
Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., January 26, 2018. REUTERS/Brendan McDermid
All 11 major sectors of the S&P 500 closed down. Technology .SPLRCT weighed the heaviest, with Microsoft (MSFT.O) pulling the sector down 3.0 percent.
The CBOE Volatility Index .VIX, the most widely followed barometer of expected near-term volatility for the S&P 500 Index rose more than four points to 17.86, its highest since November 2016. VIX options trading volume hit a record high.
Analysts now see fourth-quarter earnings growth of 13.6 percent for the S&P 500, up from 12 percent on January 1. Half of the index’s companies have reported, 78 percent of which beat Street expectations, according to Thomson Reuters data.
Exxon Mobil Corp (XOM.N) and Chevron Corp (CVX.N) shares were down 5.1 percent and 5.6 percent, respectively, after the oil companies posted lower-than-expected fourth-quarter profit.
Alphabet (GOOGL.O) fell 5.3 percent after the Google parent’s fourth-quarter profit came in below consensus on increased spending.
Apple (AAPL.O) shares were off by 4.3 percent as investors worried about the iPhone maker’s weak outlook amid reports of scaled back iPhone X production.
Amazon.com (AMZN.O) was a bright spot, up 2.9 percent as Wall Street analysts quickly upped their price targets following the online retailer’s impressive earnings report.
Declining issues outnumbered advancing ones on the NYSE by a 7.70-to-1 ratio; on Nasdaq, a 3.90-to-1 ratio favored decliners.
The S&P 500 posted 18 new 52-week highs and 18 new lows; the Nasdaq Composite recorded 48 new highs and 103 new lows.
Volume on U.S. exchanges was 5.39 billion shares, compared to the 7.33 billion average for the full session over the last 20 trading days.
The Dow Jones industrial average closed more than 600 points lower Friday, only the ninth time in history that has happened.
The index posted a loss of nearly 666 points, its sixth-worst decline ever on a points basis.
The last time the index posted a drop of more than 600 points was June 24, 2016, the day after the Brexit vote.
The eight other times the Dow closed more than 600 points lower all took place in the last 18 years. Half occurred during the financial crisis in 2008.
