Published: Sat, February 10, 2018
Business | By Max Garcia

Dow falls more than 1000 points as markets remain volatile

Dow falls more than 1000 points as markets remain volatile

Asian shares have opened lower and are tracking the overnight plunge on Wall Street.

Bond yields in the USA have also risen in recent weeks, typically a signal of higher rates.

Why is it called the Dow Jones Industrial Average? . It's switched between gains and losses several times since then.

The correction has resulted in a paper loss of $2.49 trillion for the S&P 500 and $5.2 trillion loss for global markets, according to S&P Dow Jones Indices.

The S&P 500 also plunged 3.7 percent by the end of the trading day for a new weekly low.

In Toronto, the S&P/TSX composite index was down 264.97 points, or 1.73 per cent, to 15,065.61, in a broad-based decline.

The steep drops Friday and Monday wiped out the gains the Dow and S&P 500 made since the beginning of the year, but both remain higher over the past 12 months.

The S&P 500 gave up 44 points, or 1.7 percent, to 2,637.

With the latest drops, both the Dow and the broader S&P 500 are down more than 10 percent from their peaks on January 26, which constitutes a market correction. In typical and predictable fashion, Wall Street keeps its blinders on. The S&P correction is the fifth of this bull market, according to Yardeni Research. It has been an uncommonly long time since the last market correction, which ended nearly two years ago. Markets can not be one way.

Shares in financial, technology and consumer companies led the declines on Thursday, which infected every sector. Employers are hiring at a healthy pace, with unemployment at a 17-year low of 4.1 percent.

U.S. markets have been under pressure all week, with the Dow notching its biggest loss ever in terms of points on Monday, rallying on Tuesday and finishing modestly lower Wednesday. The rate on the 10-year Treasury bond was about 6.66 percent versus a dividend yield on stocks of only 1.17 percent.

Treasury Secretary Steven Mnuchin says the stock market has been "quite volatile" in recent days, but that has not shaken his view that the underlying economy is strong.

However, some investors fear that the market is over-stretched in the context of higher inflation and rising bond yields as central banks withdraw their easy money policies of recent years. Higher rates act like a brake on the economy by slowing down borrowing and lending. The markets have been unusually calm since late 2016, and he said investors were betting that would continue.

"The market is focused on higher interest rates right now", said Kate Warne, investment strategist at Edward Jones.

"A lot of people have been forced to put on positions that will need to be either wound down or rolled forward", Cherry said.

Investors also point to additional pressure from the violent unwinding of trades linked to bets on volatility staying low.

More: Economy is up? Wall Street has been expecting three rate hikes at most.

Benchmark U.S. crude oil lost 64 cents, or 1 percent, to $61.15 a barrel in NY. Brent crude, the global standard for oil prices, gave up 70 cents, or 1.1 percent, to $64.81 per barrel in London. So far this year the pan-European benchmark is down over 4 per cent. Several attempts to rally failed, and it dived steeply in the final hour of the session, ending down almost 1,033 points.

The move was a break from many months of relative calmness and left market participants grappling with the implosion of products that bet against volatility.

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