Pop quiz: When did the Dow last drop as much as it did today?

Short answer: Who cares? You’re not selling today, so don’t fret. Longer answer: The last time was eight months ago, but let’s put things in context. The Dow dropped by more than 800 points today — an amount that definitely catches attention. But in the grand scheme of things, it’s just a blip on the radar. So, what happened today? Basically, interest rates. Treasury yields have surged lately, specifically the yield on the 10-year U.S. Treasury note. It spiked last month and has continued its rise into October. A rise in yields means higher borrowing costs for corporations and investors. It also makes stocks look less attractive compared to bonds (For the pros out there, higher yields also make stocks look more expensive because of a higher “discount rate.”) On top of that, richer rates of so-called risk-free bonds can attract investors away from equities, which are perceived as comparatively riskier. MARKET CONTEXT Over the past two years, U.S. markets have soared. The Dow Jones Industrial Average gained more than 7,800 points in 2016 and 2017, and has continued rising this year. Dramatic numbers reported during the volatility of the first days of February kicked off a rockier 2018 than

October 10, 2018 No Comments

Dow drops: Are you ready for the stock market roller coaster?

Stocks markets took a break from their meteoric rise of the last several months. The Dow dropped 2.5%, and the S&P 500 fell 2.1% on Friday, capping their biggest weekly decline in more than two years. Although frustrating to some, today’s losses are likely a good thing. The market was in need of a pullback. Week after week of positive results, while comforting to hear, is not how markets normally behave. Overheating was a concern on the minds of many market participants. A down week helps to tamp down the flames. Friday’s pullback was not really surprising given the extreme upsurge we’ve seen in equity prices. Moves of 2-3% are not unusual in hot markets, especially a late-stage bull market like the one we’re in. Investors need to be prepared for volatility in 2018. Setting the scene Today’s selloff followed news that the economy had added 200,000 jobs in January and wages grew at the fastest pace in eight years. Investors might be worried that wage growth could impact corporate profits, one of many examples in which the interests of asset owners and labor are not perfectly aligned. But both groups should be concerned about inflation, which is rising now

February 2, 2018 No Comments