Dow’s dip evidence of inflation and jobs fears in US

Worries about the impact of a tightening job market on the prospects for inflation and a surge in bond yields sent investors fleeing equities on Friday, with the Dow Jones Industrial Average swooning almost 666 points, for its biggest daily percentage loss in 20 months.

It was the biggest daily point fall in the Dow since December 2008 during the financial crisis.

With Friday’s rout, Wall Street’s three major indexes logged their biggest weekly losses in two years, after closing at record highs the previous week. The S&P 500 and Dow saw their worst weeks since early January 2016, while Nasdaq had its worst week since early February 2016.

“People are starting to really get increasingly uncomfortable with the rapid rise in interest rates that we have seen and the uncertainty of how that is actually going to start to play out relative to competition for stocks,” said Chuck Carlson, chief executive at Horizon Investment Services in Hammond, Indiana.

Overnight stock price losses accelerated after the US labour department reported employment grew more than expected in January with the biggest wage gain in more than rightand-a-half years.

The picture of workers commanding higher salaries fuelled expectations that inflation is on the rise, which could prompt the Federal Reserve to take a more aggressive approach to rate increases this year.

That caused the 10-year Treasury yield to surge to 2.8450 per cent, the highest since January 2014, which could make returns on Treasuries look more attractive relative to stocks.

But market players are not convinced that the bull market in stocks during which the S&P 500 rose 5.6 per cent in January is over. In fact many say a pullback was overdue.

“You have a jobs report today that was pretty robust all kind of feeding into the higher interest rates, greater inflation story, and I think the markets are trying to grapple with that right now,” said Mr Carlson.

The Dow Jones Industrial Average fell 665.75 points, or 2.54 per cent, to 25,520.96, the S&P 500 lost 59.85 points, or 2.12 per cent, to 2,762.13 and the Nasdaq Composite dropped 144.92 points, or 1.96 per cent, to 7,240.95.

S&P 500 e-mini stock futures extended the losses after 4pm (US eastern standard time) close in the cash market. S&P 500 futures closed down 2.3 per cent, the biggest daily percentage drop since September 2016.

All 11 major sectors of the S&P 500 closed down. Technology weighed the heaviest, with Microsoft pulling the sector down 3 per cent.

People are starting to really get increasingly uncomfortable with the rapid rise in interest rates that we have seen