It’s been a wild two weeks on Wall Street after a historic period of calm.
The Dow started in the red on Thursday, the sixth straight day of losses at the opening bell. The Dow opened down about 100 points, or 0.4%.
Wall Street is attempting to stage a lasting rebound from Monday, when fears about the bond market sent the Dow plunging a record 1,175 points.
“Volatility shocks tend to take time to work off, so sharp moves intraday should still be expected,” analysts at Bespoke Investment Group wrote in a report on Thursday.
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.
The yield on the 10-year Treasury bond ticked higher again on Thursday morning, to 2.86%. That’s a big spike from just 2.65% during the panic selling Monday afternoon.
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.
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.”
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 6% off their from all-time highs.
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.
CNNMoney (New York) First published February 8, 2018: 9:11 AM ET
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