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Wall Street Caps Off Worst Week in 2 Years

The Dow Jones Industrial Average fell 2.54%, the S&P 500 lost 2.12% and the Nasdaq Composite dropped 1.96%
The New York Stock ExchangeThe New York Stock Exchange

Signs that a long-awaited correction may have arrived on Wall Street will keep investors on edge on Monday after the S&P 500 closed off the week with its biggest percentage drop in two years. The S&P 500 has slumped 3.89% since hitting a record high a week ago, trimming its gain in 2018 to 3.2%.

With the S&P surging more than 20% over the past year, selloffs like Friday's 2.12% drop have become rare. No session last year suffered a loss of 2% or more, and 2016 had only four declines of that magnitude, CNBC reported.

"Sentiment was getting a little frothy, and we were developing some complacency in the market. Now that complacency is coming out of the market," said Keith Lerner, chief market strategist at Suntrust Advisory Services in Atlanta.

Among S&P 500 sectors, energy led decliners for the week, down 6.4%. Telecom Services got off the lightest with a 1.28% loss over five days. Chesapeake Energy Corp, Tractor Supply Co and Harley-Davidson Inc were the S&P 500's worst performers for the week, each down more than 13%.

The number of declining US stocks for the week reached more than 27,000, the most since at least July 2014.

Fewer than 12,000 US stocks advanced for the week, the lowest on Wall Street since at least July 2014. The number of US stocks hitting yearly lows this week reached 3,000, an amount not seen since 2016. Just over 2,500 US stocks hit yearly highs this week, the lowest number since September.

Investors next week will look cautiously to wrangling in congress over the country's finances. "Working against the market is the Feb. 8, 2018 spending deadline, the upcoming debt limit issue (both Washington), and the speed of rising interest rates (which are still relatively low)," S&P Dow Jones Indices senior index analyst Howard Silverblatt wrote in a report.

Dow Jones Hit Hard

Overnight stock price losses accelerated after the US Labor Department reported employment grew more than expected in January with the biggest wage gain in more than 8-1/2 years. The picture of workers commanding higher salaries fueled expectations that inflation is on the rise, which could prompt the Federal Reserve to take a more aggressive approach to rate hikes this year.

That caused the 10-year treasury yield to surge to 2.845% the highest since Jan. 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 that that saw the S&P 500 rise 5.6% in January is over. In fact many say a pullback was overdue.

"You have a jobs report today that was pretty robust in all kinds of feeding into the higher interest rates, greater inflation story, and I think the markets are trying to grapple with that right now," said Chuck Carlson, chief executive officer at Horizon Investment Services in Hammond, Indiana.

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

Major Sectors Also Drop

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

The Chicago Board Options Exchange Volatility Index, the most widely followed barometer of expected near-term volatility for the S&P 500 Index rose more than four points to 17.86, its highest since November 2016. VIX options trading volume hit a record high.

Analysts now see fourth-quarter earnings growth of 13.6% for the S&P 500, up from 12% on January 1. Half of the index's companies have reported, 78% of which beat Street expectations, according to Thomson Reuters data.

Exxon Mobil Corp and Chevron Corp shares were down 5.1% and 5.6%, respectively, after the oil companies posted lower-than-expected fourth-quarter profit. Alphabet fell 5.3% after the Google parent's fourth-quarter profit came in below consensus on increased spending.

Apple shares were off by 4.3% as investors worried about the iPhone maker's weak outlook amid reports of scaled back iPhone X production. Amazon.com was a bright spot, up 2.9% as Wall Street analysts quickly upped their price targets following the online retailer's impressive earnings report.

Declining issues outnumbered advancing ones on the NYSE by a 7.70-to-1 ratio; on Nasdaq, a 3.90-to-1 ratio favored decliners.

 

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