Stocks’ fall marks month’s end
Inflation, interest-rate anxiety fueled sharp February loss
NEW YORK — U.S. stocks sank again on Wednesday and cemented February as the worst month for the market in two years.
Not only was the month’s loss sharp, at 3.9 percent for the Standard & Poor’s 500 index, it was also the first in a long time. S&P 500 index funds snapped a recordsetting run where they had made money for 15 straight months, including dividends.
Some of Wednesday’s drop was from a slide in the price of oil, which sent energy stocks to the market’s sharpest losses. The S&P 500 fell 30.45 points, or 1.1 percent, to 2,713.83, while the Dow Jones industrial average lost 380.83, or 1.5 percent, to 25,029.20 and the Nasdaq composite dropped 57.35, or 0.8 percent, to 7,273.01.
The dominant fear for the month was the threat of higher inflation and interest rates. Concerns got so high that the S&P 500 spiraled down 10 percent in just nine days at one point, before trimming some of its losses. The index had five losses of 1 percent or more in February, more than it did in all of last year.
Expect even more swings in coming weeks and months, said Brian Peery, portfolio manager at Hennessy Funds. Investors are trying to figure out how many times the Federal Reserve will raise interest rates this year in the face of a growing economy. Uncertainty is high given that markets are waiting to see how much Washington’s recently passed tax cuts will push companies to spend on
equipment and wages.
“We were without volatility for so long, but what’s in motion tends to stay in motion,” Peery said. “It’s been a pretty tumultuous month.”
The tumult started just as the month began, when a government report showed a jump in workers’ wages that surprised economists. That triggered worries that higher inflation may be on the way and that the Federal Reserve would need to get more aggressive about raising rates as a result. Higher rates make bonds more attractive as investments and can divert buyers away from stocks.
The dizzying result marked a sharp turnaround from the market’s blistering start to the year, when stocks jumped on expectations that corporate profits would keep rising and the global economy would keep strengthening. It was a continuation of the remarkably smooth rise that investors enjoyed in 2017.
“February finally cracked the volatility genie out of the bottle, and now the big question is: Will he stay out for good?” Ryan Detrick, senior market strategist at LPL Financial, wrote in a note to clients Wednesday. “The good news is that March kicks off two of the strongest months historically for equities, before we hit a period of seasonal weakness from May through October.”
On Wednesday, the yield on the 10-year Treasury fell to 2.86 percent from 2.90 percent late Tuesday.
The benchmark yield relinquished roughly all of its increase from the previous day, when comments from Fed Chairman Jerome Powell once again raised speculation of a more aggressive Fed. He told Congress that he’s more optimistic about the economy, which led some investors to anticipate four rate increases for 2018, up from three last year.
“Yesterday’s Powell comments in our view were more noise,” said Mike Bailey, the director of research at FBB Capital Partners in Bethesda, Md. “You had Powell suggesting four rate hikes as opposed to three and on the margin that’s a little bit better if you’re looking for higher yields and a little worse for a lot of equities. Today, you’re seeing a reversal out of that and a lack of incremental news coming out of the Fed.”
Among the biggest losers on Wednesday in the S&P 500 was Lowe’s, which reported weaker profit for the last quarter than analysts expected. The home-improvement retailer’s stock dropped $6.20, or 6.5 percent, to $89.59.
Energy stocks in the S&P 500 lost 2.3 percent for the sharpest drop among the 11 sectors that make up the index. They were hurt by a sharp drop in the price of oil after a government report showed that the amount of oil in U.S. inventories rose more than analysts expected last week.
Benchmark U.S. crude lost $1.37 to settle at $61.64 per barrel. Brent crude, the international standard, fell 85 cents to $65.78 per barrel.
On the winning side was Booking Holdings, the company formerly known as Priceline. It jumped $129.03, or 6.8 percent, to $2,034.04 after it reported a bigger profit for the latest quarter than analysts expected, aided by stronger travel bookings.
Overseas stock markets were subdued. In Europe, France’s CAC 40 fell 0.4 percent, and Germany’s DAX lost 0.4 percent. The FTSE 100 in London was down 0.7 percent.
In Asia, Japan’s Nikkei 225 tumbled 1.4 percent, South Korea’s Kospi lost 1.2 percent and the Hang Seng in Hong Kong lost 1.4 percent.
The dollar dipped to 106.66 Japanese yen from 107.42 yen late Tuesday. The euro fell from $1.2236 to $1.2203, and the British pound slipped from $1.3916 to $1.3771.
In the commodities markets, natural gas sank 2 cents to $2.67 per 1,000 cubic feet, heating oil lost 5 cents to $1.92 per gallon and wholesale gasoline fell 5 cents to $1.76 per gallon.
Gold slipped 70 cents to $1,317.90 per ounce, silver lost 3 cents to $16.41 per ounce and copper dropped 5 cents to $3.13 per pound. Information for this article was contributed by Kailey Leinz and Sarah Ponczek of Bloomberg News.