US markets tumble on Monday

06 Feb 2018 Evaluate

The US markets tumbled on Monday, with the Dow recording its worst one-day point drop in history, in a selloff that at times took on the characteristics of a panic. The Dow was down more than 1,500 points at its session low, while the S&P 500 logged its first 5% pullback from its all-time high in over a year. The financial sector was the biggest loser, tanking 5%, followed by health care, industrials, energy, telecommunications, and information technology which all fell more than 4%. Monday’s sell-off was driven by firms moving to sell stocks to put more money into assets such as bonds which benefit from higher rates. Meanwhile, Jerome Powell officially took the helm of the Federal Reserve Board on Monday, replacing Janet Yellen in a carefully choreographed transition. Minneapolis Federal Reserve Bank President Neel Kashkari, who voted against the Fed’s interest-rate hikes last year, said that he needs more convincing that wages and prices are on the rise before he would support further monetary policy tightening. But to Kashkari, who is not a voter on monetary policy this year but takes part in the Fed’s regular policy-setting meetings that is not enough. Kashkari said he has been surprised at how much optimism his business contacts have expressed over the Trump administration’s tax overhaul, but that the jury is still out on whether the tax cuts will boost growth over the long run. And until data shows stronger inflation, he suggested, the Fed should leave rates alone.

On the economy front, a survey that tracks the performance of service-oriented companies such as hotels, restaurants and banks surged in January to a 13-year high of 59.9. Employment activity set a record. An index that measures current staffing and future hiring plans rose to an all-time high of 61.6 from 56.3 in the prior month. That’s the highest level since the ISM services index began in 1997. The new orders index also jumped 8.2 points to 62.7, the highest level since 2011. Fifteen of the 17 industries tracked by ISM said their businesses expanded in January.

Separately, the Federal Reserve’s senior loan-officer survey for the fourth quarter painted a mixed picture, with banks loosening standards on business loans but tightening them on commercial real-estate loans. Standards for consumer loans and residential mortgages were roughly unchanged. The report found an overall lack of demand for bank loans. Demand weakened for consumer real estate, auto loans and residential mortgages and was unchanged for business loans. The banks that eased standards for business loans cited more aggressive competition. Some banks also reported improvement in the economic outlook. The survey asked about the outlook for this year. Banks said they expect business-loan demand to strengthen.

The Dow Jones Industrial Average lost 1,175.21 points or 4.60 percent to 24,345.75, the Nasdaq dropped 273.42 points or 3.78 percent to 6,967.53, the S&P 500 edged lower by 113.19 points or 4.10 percent to 2,648.94.

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