Stock prices fell sharply from near record highs Friday, with the Dow Jones industrial average tumbling 666 points, or 2.5 percent, to close out the worst week on Wall Street in years.
The main trigger was growing concern about rising interest rates and inflation, and their impact on stocks going forward, as the yield on the 10-year Treasury note reached its highest peak in four years, analysts said.
But they said that many of the fundamental factors that have driven stocks higher – including rising corporate earnings – remain intact, and that Friday’s trading had no signs of panic selling.
Indeed, they said the pullback was not surprising given the market’s remarkable surge of the last 12 months, which extended a nine-year bull market in stocks.
“The fundamentals are still OK,” said Patrick O’Hare, chief market analyst at the investing website Briefing.com. “The easy money had been made, and it will be more challenging to extend the gains as interest rates move higher.”
The Dow Jones industrials fell 665.75 points to 25,520.96. That was the worst point drop since the blue-chip average fell 678.92 points on Oct. 9, 2008, in the midst of the nation’s financial crisis.
But whereas that 2008 drop amounted to a 7.3 percent drop, Friday’s decline was only 2.5 percent because prices have climbed so much since then.
Still, it was the Dow’s worst drop in percentage terms since June 24, 2016, when the markets were rocked by Britain’s vote to leave the European Union.
All 30 of the Dow’s component stocks fell, with energy, technology and financial shares posting some of the heaviest declines.
The S&P 500 fell 59.85 points, or 2.1 percent, to 2,762.13, and the tech-heavy Nasdaq composite index dropped 144.92 points, or 2 percent, to 7,240.95.
Only a week earlier, all three of the major indexes had set record highs.
So the market was ripe for investors to cash in part of their profits from a rally, and the growing interest rate worries provided one of the sparks to take money off the table, analysts said.
For instance, the benchmark Standard & Poor’s 500 index jumped an eye-popping 7.5 percent in January alone. “Did you think 7 percent was going to be a normal monthly gain? It’s just not,” said Art Hogan, chief market strategist at Wunderlich Securities.
“Stocks got ahead of themselves,” Hogan said.
Local journalism is essential.
Give directly to The Spokesman-Review's Northwest Passages community forums series -- which helps to offset the costs of several reporter and editor positions at the newspaper -- by using the easy options below. Gifts processed in this system are not tax deductible, but are predominately used to help meet the local financial requirements needed to receive national matching-grant funds.
Subscribe to the Coronavirus newsletter
Get the day’s latest Coronavirus news delivered to your inbox by subscribing to our newsletter.