Market Snapshot: Dow runs risk of worst one-day point drop in history as mood turns panicky

U.S. stocks tumbled Monday, with the Dow poised for its worst one-day point drop in history, as the market’s selloff at times took on characteristics of panic sales. The Dow was at one point down more than 1,500 points, while the S&P 500 logged its first 5% pullback from its all-time high in over a year.

The day’s weakness was broad based, with a majority of S&P 500 sectors down and European and Asian markets finishing sharply lower. Japanese stocks suffered their biggest one-day drop since Nov. 9, 2016.

What are the main benchmarks doing?

The S&P 500

SPX, -4.10%

was down 79 points, or 2.9%, to 2,682. With Monday’s selloff, the large-cap index is off more than 5% from its all-time intraday high of 2,872.87 on Jan. 26. The S&P 500 had gone 406 sessions without such a decline, marking the longest period without a 5% pullback in 20 years. The large-cap index had also briefly surrendered most of its gains for 2018 before trimming losses.

The Dow Jones Industrial Average

DJIA, -4.60%

slumped 951 points, or 3.7%, to 24,569, not only giving up all its 2018 gains but sliding below the key 25,000 mark.

The Nasdaq Composite Index

COMP, -3.78%

shed 167 points, or 2.3%, to 7,069. However, the tech-heavy index managed to cling to 2018 gains of some 2%.

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The financial sector was among the biggest decliners, off more than 3% on the back of a sharp decline at Wells Fargo. The fall builds on the sector’s 2.2% drop on Friday. Energy shares also tumbled alongside a drop in crude oil prices.

Friday had represented the biggest one-day drop for the S&P since September 2016, and capped the worst weekly decline for both the Dow and the S&P in more than two years. The selloff followed a stronger-than-expected jobs report, which investors took as a sign the Federal Reserve could be more aggressive in raising interest rates than previously expected.

What could help drive markets?

Rising bond yields could continue to peel some money away from equities. The yield on the 10-year U.S. Treasury note

TMUBMUSD10Y, -4.90%

 at one point reached as high as 2.883%. It has since dropped back to 2.82%. The rise in yields means that bond prices are declining, as prices and yields move inversely to each other.

The 10-year yield has been trading around levels last seen four years ago in the wake of Friday’s monthly jobs report that revealed a jump in wage growth. That stoked inflation fears as Jerome Powell formally took over as chairman of the Federal Reserve on Monday, replacing Janet Yellen.

Read: Stock-market melt-up takes a timeout as bond yields rise

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What are strategists saying?

Michael Wilson, chief U.S. equity strategist at Morgan Stanley, said he is in no rush to buy the dip as there are growing worries about the “unfunded” fiscal spending and a Federal Reserve that “appears to be behind the curve” when it comes to rates.

Read: Why stock-market investors need to worry more about fiscal policy than the Fed

“The panicky selloff and partial recovery was driven by algorithmic programs, because humans don’t make decisions that fast. It’s a mini flash crash,” said Kim Caughey Forrest, senior analyst and portfolio manager at Fort Pitt Capital Group. “To be honest, we were getting uncomfortable by the relentless rally, so this market now seems a lot more normal,” Forrest said.

Randy Frederick, vice president of trading and derivatives for Charles Schwab, noted that stocks have “been going almost straight up since the start of the year,” which meant a pullback was both “expected and healthy” in his view.

“It doesn’t mean the bull market is over; it simply takes away some of the froth and irrational exuberance from stocks and puts us back on a more sustainable trendline.”

At current levels, the Dow is 4.5 percentage points below its all-time high, while both the S&P and the Nasdaq are about 4 percentage points below their own. The S&P has gone an unprecedented length of time without a 5% pullback, something that is historically extremely common.

“At this point, we would categorize this pullback as minor,” wrote the global investment strategy team at the Wells Fargo Investment Institute, which noted that historically, the S&P has a 10% decline every 11 months. The benchmark index hasn’t had such a drop since early 2016. “We believe that the market has been due for (at least) a consolidation.”

Bank of America Merrill Lynch warned Friday that a sell indicator has been triggered for the market as $102 billion has flowed into global equities in 2018. That is amid widespread concerns over valuations.

Which stocks look like key movers?

Wells Fargo Inc.

WFC, -9.22%

 tumbled 8.3% after the bank said Federal Reserve sanctions over customer-accounts scandals could cut into profit by as much as $400 million this year. The stock was the biggest decliner among financial shares, although the sector was broadly lower.

Bristol-Myers Squibb Co.

BMY, -3.97%

 fell 3% despite reporting positive results for advanced lung-cancer trial results, along with fourth-quarter profit and revenue beats.

Qualcomm Inc.’s stock

QCOM, -6.57%

 slid 4.3%, erasing a premarket gain that came after Broadcom Ltd.

AVGO, -3.13%

 boosted its bid to buy the chip maker by 17% to a “best and final offer” of $82 a share. Broadcom was up 1.1%.

Corcept Therapeutics Inc.

CORT, -26.43%

 tumbled 25% after the drug market disclosed that it had been informed Teva Pharmaceutical Industries Ltd.

TEVA, -4.04%

had submitted a new drug application for a generic version of Corcept’s hyperglycemia treatment Korlym. U.S.-listed shares of Teva fell 2.4%.

Exxon Mobil Corp.

XOM, -5.69%

declined 4.7% and was one of the biggest drags on the Dow.

Which economic data reports are due?

On Monday, the IHS Markit purchasing managers index for services fell to 53.3 in January from 53.7.

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, the Institute for Supply Management said. Employment activity set a record.

What are other assets doing?

European stocks

SXXP, -1.56%

were a sea of red, while Asian markets suffered a broad selloff, with the Nikkei 225 index

NIK, -2.55%

 tumbling 2.5%.

Gold futures

GCG8, +0.20%

 were flat, while oil futures

CLH8, -2.66%

 dropped nearly 3% and the ICE U.S. Dollar Index

DXY, +0.37%

rose 0.3%.

Digital currencies continued their recent retreat as bitcoin

BTCUSD, -11.61%

 fell below $8,000, trading at levels last seen in November. The world’s largest cryptocurrency has lost more than half its value since a high reached in December.


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