A record loss wipes away all of the 2018 gains
Monday was a historic day on Wall Street but not in a good way. The Dow Jones industrial average tumbling 1,175.21 points — its largest-ever one day point decline in its 122-year history.
In what can only be called a wild ride for investors, early in the afternoon, the Dow bounced up an incredible 655 points in six minutes — the bears, fearful of inflation and rising interest rates, took over and the sell-off was on again.
But when the final bell rang at the end of the trading day it was a mess. The Dow closed out the day down 1,175.21 points — or 4.6 percent — to 24,345.75. The broader S&P 500 also plunged, dropping a hefty 113.19 points, to 2,648.94, while the Nasdaq closed down 3.8 percent, to 6,967.35.
The one-day disaster was bad enough to wipeout all the gains for 2018 for the Dow and the S&P.
So, at this point early into the2018 trading year the Dow is now down 0.8 percent and the S&P 500 is down 0.9 percent. The tech-heavy Nasdaq is the only major index on the plus side of the margin with 1 percent for the year.
When you look at this on a pure percentage basis, the Dow was briefly down more than 6 percent. The drop was a scary one to be sure, but still a far cry from the Dow’s 22.6 percent drop on Oct. 19, 1987 — also known as Black Monday.
Monday’s sell-off was an ugly continuation of Friday’s downturn, when the Dow shed 666 points on inflation worries after the Labor Department reported hourly wages increasing at the fastest rate since June 2009.
Part of the concern is an interview that aired on CBS’ “Sunday Morning” in which now-former Federal Reserve Chair Janet Yellen warned that the market was looking hot.
Those comments sent Dow futures down as much as 300 points in pre-trading Monday morning. However, much of the worry on Wall Street, some analysts say the market — which soared over the last 15 months with little interruption — is behaving normally.
Jerome Powell, the new Fed chair installed by President Donald Trump and sworn in Monday, is not expected to deviate sharply from Yellen’s gentle approach to raising interest rates. But he is really an unknown figure to most on Wall Street.
According to Politico – “This is a risk that the president clearly set himself up for,” said Charles Gabriel of Capital Alpha Partners, a Washington research firm. “Until now, Trump’s had kind of a free ride in this market and taken so much credit for it, even though so much of it was due to easy-money policies from Janet Yellen and the Fed. Now she’s out the door and volatility is back.”
Wall Street likes a degree of certainty and right now they don’t have it. They have no clue whether Powell and the Fed can find a way to balance the economy and wages to rise without letting potentially crushing inflation take hold. And if Powell and his colleagues decide they need to pump the brakes hard, that could leave them in direct conflict with a president not shy about criticizing people he himself put into office.
And it could leave Trump with regret about jettisoning a Fed chair whom Wall Street came to love.