Dow plunges 1,033 points and sinks into correction

For the second time this week, the Dow plunged more than 1,000 points.And it's now in a correction -- 10% off ...

Posted: Feb 9, 2018 5:50 AM
Updated: Feb 9, 2018 5:50 AM

For the second time this week, the Dow plunged more than 1,000 points.

And it's now in a correction -- 10% off its record high just two weeks ago.

Fears about the bond market, inflation and interest rates seized investors again Thursday and drove the Dow, the S&P 500 and the Nasdaq all into the red for the year.

The Dow finished with a decline of 1,033 points, the second-worst in history, eclipsed only by Monday's 1,175-point plunge.

The percentage decline on Thursday, 4.2%, wasn't nearly as bad as the scary days of the 2008 financial crisis. But a stock market accustomed to a steady climb for more than a year and half as given way to two weeks of shaky selling.

"This is not the end of the world, but it is uncomfortable," said Rich Guerrini, CEO of PNC Investments.

The 10-year Treasury yield briefly hit a four-year high of 2.88%, renewing concerns about inflation and higher interest rates.

"The bond market has definitely got the stock market's attention," said Ryan Detrick, senior market strategist at LPL Financial. "Is the bond market telling us something we don't know? Is there more inflation down the road than we're expecting?"

The latest round of selling knocked the Dow and S&P 500 back into the red for the year. All of the Nasdaq's gains for 2018 were also wiped out.

Wall Street has failed to stage a lasting rebound from Monday, when fears about the bond market sent the Dow plunging a record 1,175 points.

Trading has been extremely choppy, and the market has swung in wide ranges -- up and down nearly 2,300 points over the past week. Consider this: The S&P 500 has risen or fallen 1% five times in the past two weeks. That only happened eight times all of last year, the fewest since 1964, according to LPL.

The VIX, a measure of market volatility, jumped 15% on Thursday.

"A big down day like Monday doesn't just go away. We're going to continue to see volatile days," said JJ Kinahan, chief market strategist at TD Ameritrade. "It can take two to three weeks to work through the system."

Related: Trump breaks his silence on market chaos

It's a big shift from 2017 and the beginning of 2018, when the stock market went the longest period ever without tumbling. But such calm is unusual, and stocks overheated.

"We had an epic run. There was euphoria because there hadn't been a pullback," said Jeffrey Schulze, investment strategist at ClearBridge Investments.

Bonds are spooking stocks

The yield on the 10-year Treasury bond ticked higher again on Thursday morning, to 2.88%. (A flight to safety away from stocks and back into government bonds knocked the 10-year back down to 2.82% by early afternoon.)

"We haven't seen interest rates rise like this in a long time," Guerrini said. "Obviously people are reacting."

The bull market has feasted on extremely low bond rates. The fear is that Treasury yields will rise to levels that make stocks less attractive and force the Federal Reserve to fight inflation by aggressively raising interest rates.

New York Federal Reserve President Bill Dudley told Bloomberg News on Thursday that if the U.S. economy keeps getting stronger the central bank may be justified in raising rates four times this year. Wall Street has been expecting three rate hikes at most.

Dudley, who called the market slump "small potatoes," said the "jury is still out" on the number of rate hikes.

Washington is putting more pressure on rates. The U.S. Senate reached a bipartisan deal Wednesday that would boost spending limits by $300 billion over the next two years. The compromise, coupled with Republican tax cuts, could lift the federal budget deficit to $1.07 trillion in fiscal 2019, according to Bank of America estimates.

Wall Street anticipates that more government spending will force the Treasury Department to borrow more money by selling additional bonds. To drum up demand for that higher supply, rates may have to go up.

Bank of America analysts warned that the Senate agreement will contribute to "higher rates" and raise "risks for tighter overall financial conditions."

Related: Trillion-dollar deficits will hit sooner than expected

These bond market worries briefly sent the Dow into a correction earlier this week, a 10% decline from recent highs. The fragile rebound lifted the market a bit, and the Dow and S&P 500 are now about 8% off their from all-time highs. Neither index has closed in a correction in two years.

The stock market is still up dramatically since President Trump's election. His promises for big corporate tax cuts helped lift the Dow more than 8,000 points, though it has since given back about a fifth of that surge.

The market performance also reflects the strong U.S. and global economies, which have boosted corporate profits. The job market remains healthy, as evidenced by a report Thursday that applications for unemployment benefits are at a 45-year low.

"The U.S. economy is on solid foundation," said ClearBridge's Schulze.

--CNNMoney's Donna Borak contributed to this report.

Mississippi Coronavirus Cases

Data is updated nightly.

Cases: 159036

Reported Deaths: 3879
CountyCasesDeaths
DeSoto10563104
Hinds10414204
Harrison7397113
Jackson6655128
Rankin6057107
Lee540396
Madison5120107
Forrest394786
Jones376188
Lauderdale3663147
Lafayette341053
Washington3321108
Lamar301950
Oktibbeha255262
Lowndes252867
Bolivar248084
Panola237353
Neshoba2280122
Marshall225051
Leflore211191
Monroe209778
Pontotoc208131
Lincoln200566
Sunflower194155
Warren183058
Tate180451
Union172926
Copiah170840
Pike166760
Scott161330
Yazoo161340
Itawamba159936
Alcorn159328
Pearl River158969
Coahoma155943
Prentiss154931
Simpson154053
Adams147252
Grenada145445
Leake141844
Holmes134461
Covington130040
Tippah130030
George129525
Winston128726
Hancock127641
Wayne123024
Attala122834
Marion121447
Tishomingo114043
Chickasaw110732
Newton110529
Tallahatchie99427
Clay96127
Clarke94853
Jasper87023
Stone82015
Calhoun79513
Walthall79330
Montgomery78426
Carroll75515
Lawrence74614
Smith74216
Yalobusha74228
Noxubee73317
Perry68726
Tunica63019
Greene62422
Jefferson Davis59617
Claiborne59216
Amite57615
Humphreys55219
Quitman5107
Benton50418
Kemper48018
Webster47714
Wilkinson40722
Jefferson38312
Choctaw3637
Franklin3635
Sharkey32917
Issaquena1214
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Alabama Coronavirus Cases

Cases: 256828

Reported Deaths: 3711
CountyCasesDeaths
Jefferson34214511
Mobile20299366
Madison13925150
Tuscaloosa13591156
Montgomery12659238
Shelby1095877
Baldwin9163137
Lee792566
Morgan710851
Etowah677467
Calhoun6695121
Marshall665757
Houston548239
DeKalb504738
Cullman472043
St. Clair451857
Limestone447546
Lauderdale436054
Elmore427564
Walker3818111
Talladega374457
Jackson350723
Colbert336443
Blount310043
Autauga287342
Franklin259734
Coffee254115
Dale242054
Dallas232932
Chilton230841
Russell22813
Covington227934
Escambia206131
Tallapoosa189191
Chambers185950
Pike162214
Clarke161819
Marion146136
Winston141924
Lawrence135336
Pickens127720
Geneva12638
Marengo125224
Bibb123938
Barbour120629
Butler118842
Randolph105922
Cherokee105524
Hale99732
Fayette96316
Clay93525
Washington93319
Henry8946
Monroe83811
Lowndes82129
Cleburne79914
Macon76522
Crenshaw72930
Conecuh72414
Lamar7138
Bullock70919
Perry6927
Wilcox64918
Sumter58922
Greene44218
Choctaw43519
Coosa3724
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