US markets suffer biggest one-day drop in more than a year

03 Feb 2018 Evaluate

The US markets tumbled on Friday, with the main benchmarks suffering their biggest one-day drops in more than a year and posting the steepest weekly losses in about two years. The selling, which traders called orderly, continued throughout the session, as investors digested a stronger-than-expected jobs report that stoked inflation fears and contributed to a continued rise in bond yields. Meanwhile, outgoing Federal Reserve Bank Chair Janet Yellen said that solid economic growth, faster wage increases, and a tightening labor market mean the US central bank is likely to need to continue to raise interest rates gradually, as it has signaled it will. Separately, San Francisco Federal Reserve Bank President John Williams said that a pickup in wage growth and inflation are signs of a healthy economy and at this point are not enough to force the US Federal Reserve to raise rates much more this year than the three times it has been signaling. Williams added that faster economic growth, buoyed by strong financial conditions, global growth and the Trump administration's tax cuts, could mean the Fed raises rates three or four times this year. Williams said the rise in bond yields may be a delayed reaction to good economic news that he’s been seeing for several months now, and said he sees overall financial conditions as still accommodative.

On the economy front, the University of Michigan’s consumer sentiment index fell slightly in January but remained near a post-recession high, reflecting an optimistic outlook by Americans buoyed by record stock-market gains and recent tax cuts. The sentiment index slipped 0.2 points to 95.7 last month. The strongest labor market in almost two decades is another source of comfort. Americans are more confident about job security and they are less likely to base spending decisions on whether they can get discounted prices.

On the other hand, the US created 200,000 new jobs in the first month of 2018, showing that companies are still hungry to hire more than eight years after an economic expansion began. Even better, worker pay also rose at the fastest yearly pace since 2009. Unemployment remained at a 17-year low of 4.1%. The big news is rising worker pay. Average hourly wages jumped 9 cents, or 0.3%, to $26.74. That pushed the yearly increase to 2.9% from 2.6%, marking the highest level since the end of the Great Recession in June 2009. Over the last three months, the US gained an average of 192,000 new jobs. That’s a touch faster than the 181,000 monthly average for 2017. The time workers put on the job last month fell 0.2 hours to 34.3 hours, likely contributing to the uptick in pay. Many of the people who worked less also get paid less. At the same time, some 18 states raised minimum wages in January and that likely added to the increase in pay. Past increases in the minimum wage, however, have usually not had a huge impact.

The Dow Jones Industrial Average lost 665.75 points or 2.54 percent to 25,520.96, the Nasdaq dropped 144.917 points or 1.96 percent to 7,240.95, the S&P 500 edged lower by 59.85 points or 2.12 percent to 2,762.13.

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