February 5, 2018
The Dow fell 4.6 percent in its worst loss in 6-1/2 years and at 24,346 the year-to-date change falls into the negative column at minus 1.5 percent. Concern that inflation pressures, though yet to tangibly appear, will force the Federal Reserve to raise rates less gradually than expected is behind the selloff. The jitters were triggered by last week's FOMC statement, which incrementally raised the Fed's outlook for inflation, followed on Friday by a moderate monthly gain in the wage reading of the January employment report that, however, was overshadowed by the year-on-year reading which moved noticeably higher to 2.9 percent and near the 3.0 percent rate where hawks say wage pressures begin to spillover into general inflation. The drop in the market of course follows last year's dramatic gains, including 25 percent for the Dow. Bitcoin, seen as a symbol of speculation, fell 12 percent on the day to 7,100.
The day's economic news is very positive with both PMI services and ISM non-manufacturing reporting solid rates of growth especially the latter where both new orders and employment are especially strong.
Money moved into the safety of the bond market where rates fell sharply across the yield curve, down 9 basis points to 2.05 percent for the 2-year Treasury note and down 13 basis points to 2.71 percent for the 10-year. The dollar also gained, up 0.4 percent on the dollar index to 89.54. Oil fell about $1.75 to $63.75 while gold firmed but only slightly, to $1,340.