Published: Sat, February 10, 2018
Money | By Armando Alvarado

How major United States stock indexes fared Friday

How major United States stock indexes fared Friday

Already, Wall Street had been expecting $1 trillion in Treasury issuance in 2018, almost double last year's total. Since its January 26 peak, the Dow has shed about 2,300 points, bringing it perilously close to correction territory, which it had slipped into in the early moments of trade on Tuesday before rebounding. At another it was up 500.

The Dow was up 264 points, or 1.1 percent, at 24,122.

The NASDAQ, the third major index in the USA and the one that includes the big tech names like Apple, Google, Amazon and Facebook, was down 9.7 per cent - just 30 basis points short of a correction.

Not only are corrections common during bull markets, they're seen as entirely normal and even healthy.

On Monday, the leading Wall Street index tumbled nearly 1,600 points at one stage but recovered to close at 24,345.75 - 1,175 points down on opening.

"One thing is that going into the last week or so, investor bullishness was in the top decile of its historical range, which suggests that investors were pretty optimistic, with high expectations and largely complacent", said Jack Ablin, chief investment officer with Cresset Wealth Advisors in Chicago. The ASX 200 was on track for its worst week since January 2016. Rising bond yields, he notes, are a sign of economic strength. The S&P 500 declined by 0.5% after gaining 1.2% during the session. Unemployment is the lowest in 17 years, and the banking system has mostly healed. But stock prices climbed faster than profits in recent years.

Moreover, notwithstanding a few tremors, the United States and European stock markets have been rising solidly since 2009, making this one of the longest bull runs in history.

"I would tell the average person to stay calm, do not react, especially off your emotions watching this right now", he said. But unless you're invested exclusively in an S&P 500 index fund, your actual returns will differ from the market's because you don't own the same stocks in the same proportions as the index.

The sell-off left the USA blue chip index 10.4pc below the high it hit at the end of January, putting it back at levels last seen in November and officially in correction territory.

The jitters have been driven by the rapid rise in 10-year Treasury yields.

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Federal Reserve Bank of Dallas President Robert Kaplan said in an interview with Bloomberg Television on Thursday that more volatility in equity markets will have little impact on the broader economy, suggesting an important shift in the outlook for interest rates. The Treasury also is having to borrow more money, partly because of the tax cuts, and issuing more debt tends to raise yields. The federal budget deficit could top $1 trillion in fiscal 2019, according to Bank of America. Rates may have to go up to attract buyers for those bonds.

Chinese equities were hurt by the drop in global shares and by traders closing positions before the Lunar New Year holidays starting next week.

Yet now the risk of investors being caught flat-footed by a rise in inflation is growing as Washington prepares to unleash a second dose of fiscal firepower. "As it approaches 3 percent, concerns about inflation and competition for stocks by fixed income securities are increasing".

The indices began to lose momentum in the afternoon, shortly after the 10-year government bond yield rose. This material is not meant to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. "That feels like where we are", Colas wrote in a report.

A dip is any brief downturn from a sustained longer-term uptrend.

Finally, it's important to understand that if a stock's price declines by 30%, you'll be waiting for an increase of more than 30% to recoup your losses. He reduced his allocation to stocks over the last two weeks, just before the selloff, from 82% to 74% and is focusing on defensive stocks: consumer staples and health care.

Despite the recent market slump, analysts believe the fundamental backdrop is solid.

Despite the heavy losses this week, the Dow remains up 32% since Trump's election.

The market, now in its second-longest bull run of all time, had not seen a correction for two years, an unusually long time.

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