Dow suffers 666-point plunge

Fears of interest rate hikes dash investors’ optimism

The Dow nosedived 666 points Friday — its sixth-biggest point loss ever — and suffered its worst week in two years.

Investors turned skittish about interest rates increasing to their highest levels in four years, dashing much of the optimism that had been powering stocks to record highs.

In a matter of days, the mood of investors has swung from euphoria to concern that the stock market, which as recently as last week was hitting new highs, might be at the start of its first sizable decline in years. The market hasn’t suffered a 10% drop since February 2016.

The Dow fell 665.75 points, or 2.4%, to 25,520.96.

The Standard & Poor’s 500 index dropped 59.85 points, or 2.1%, to 2,762.13. The S&P is down almost 4% since hitting a record high a week ago.

The Nasdaq fell 144.92 points, or 2%, to 7,240.95. The Russell 2000 index of smaller-company stocks gave up 32.59 points, or 2.1%, to 1,547.27.

The blue-chip Dow suffered its worst point decline since the financial crisis in October 2008. While the point gain might seem oversized and cause major anxiety for investors, the Dow’s percentage drop of 2.5% Friday didn’t even come close to a top-20 percentage drop for the index.

Ironically, Friday’s sell-off was sparked by continued good news in the job market, with the government reporting that the economy created 200,000 new jobs in January, and data showing wages for U.S. workers jumped nearly 3% in the past year, spurring fears of a coming spike in inflation.

It was the Dow’s worst week since the opening days of 2016, when the Dow plunged on fears of slowing growth in China.

Good news for workers, however, is viewed as not-so-good news for stocks, as it suggests the economy is in danger of overheating, which could pressure the Federal Reserve to hike short-term interest rates more aggressively than expected, said Russell Price, senior economist at Ameriprise Financial.

The big change in the market mentality is the fear that borrowing rates, which have been near record lows since the financial crisis and a major driver of asset appreciation, might be on the verge of moving dramatically higher.