US markets tumble on worries about inflation, rising bond yield

09 Feb 2018 Evaluate

The US markets closed lower on Thursday, as stocks went into a free fall late in the session on concerns about mounting volatility and worries about inflation and rising bond yields. While inflation concerns and rising rates are often described as the catalyst for the selloff, the street have also noted that equities were due for a pullback after scoring big gains in January and throughout 2017. Separately, political worries might pressure the market somewhat, as a partial shutdown of the federal government lies ahead if lawmakers don’t agree on spending measures by midnight. Senate Majority Leader Mitch McConnell and Senate Minority Leader Chuck Schumer unveiled an agreement. The deal faces a bumpy path in the House, where Republicans will need Democrats’ help to pass it, since conservatives will likely object to a big increase in government spending.

Meanwhile, New York Federal Reserve Bank President William Dudley said that the drop in the stock market so far won’t endanger the economic expansion. Dallas Federal Reserve President Robert Kaplan added that the correction in financial markets is healthy and is unlikely to hurt financial conditions or the broader US economy. Minneapolis Fed President Neel Kashkari said the Federal Reserve is a long way away from having to raise interest rates due to higher inflation on the back of higher labor costs. Kashkari said the January jobs report, which was blamed for the stock market selloff, was actually only mixed in terms of wage growth.

On the economy front, initial US jobless claims fell by 9,000 to 221,000 in the seven days ended February 3. The more stable monthly average of claims declined by 10,000 and stood at 224,500. The number of people already collecting unemployment benefits, known as continuing claims, dropped by 33,000 to 1.92 million. Missouri, California and New York saw big declines in unadjusted jobless claims, but in most states there was little change. US jobless claims have now been under the key 300,000 threshold that signals a vibrant labor market for 153 straight weeks. And there is no evidence at all that claims are about to head higher.

The Dow Jones Industrial Average slipped 1,032.89 points or 4.15 percent to 23,860.46, the Nasdaq dropped 274.825 points or 3.9 percent to 6,777.16, the S&P 500 edged lower by 100.66 points or 3.75 percent to 2,581.00.

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