By Sue Chang, MarketWatch , Ryan Vlastelica
Morgan Stanley says don't buy the dip
U.S. stocks tumbled Monday, with the Dow recording its worst
one-day point drop in history, in a selloff that times took on the
characteristics of a panic. The Dow was down more than 1,500 points
at its session low, while the S&P 500 logged its first 5%
pullback from its all-time high in over a year.
The day's weakness was broad based, with all S&P 500 sectors
down and all 30 Dow components finishing lower. The Cboe Volatility
Index , Wall Street's so-called fear gauge, surged 104% to 35.02,
its loftiest level since August 2015, according to FactSet.
How did the main benchmarks perform?
The S&P 500 dropped 113.19 points, or 4.1%, to 2,648.94. The
large-cap index is now off more than 5% from its all-time intraday
high
(http://www.marketwatch.com/story/sp-500-registers-first-5-pullback-in-more-than-a-year-2018-02-05)
of 2,872.87 on Jan. 26. The S&P 500 had gone 406 sessions
without such a decline, marking the longest period without a 5%
pullback in 20 years.
The Dow Jones Industrial Average slumped 1,175.21 points, or
4.6%, to 24,345.75, not up all its 2018 gains. The S&P 500's
percentage drop was the largest since Aug. 18, 2011, while the
Dow's drop was the biggest since Aug. 10, 2011. The S&P 500 and
Dow both turned negative for the year.
The Nasdaq Composite Index shed 273.42 points, or 3.8%, to end
at 6,967.53. However, the tech-heavy index managed to cling to a
2018 gain of 0.9%.
Read:Jerome Powell sworn in as Fed chairman
(http://www.marketwatch.com/story/jerome-powell-sworn-in-as-fed-chairman-2018-02-05-9103502)
The financial sector was the biggest loser, tanking 5%, followed
by health care, industrials, energy, telecommunications, and
information technology which all fell more than 4%.
Friday had represented the biggest one-day drop for the S&P
since September 2016, and capped the worst weekly decline for both
the Dow and the S&P in more than two years. The selloff
followed a stronger-than-expected jobs report
(http://www.marketwatch.com/story/dow-futures-tumble-more-than-250-points-on-jobs-day-2018-02-02),
which investors took as a sign the Federal Reserve could be more
aggressive in raising interest rates than previously expected.
What drove the markets?
Rising bond yields could continue to peel some money away from
equities. The yield on the 10-year U.S. Treasury note at one point
reached as high as 2.883% but subsequently dropped back to 2.72% as
the equity rout triggered a flight to quality that boosted haven
assets. Yields and debt prices move in opposite directions.
The 10-year yield had traded at a four-year high in the wake of
Friday's monthly jobs report that revealed a jump in wage growth.
That stoked inflation fears as Jerome Powell formally took over as
chairman of the Federal Reserve on Monday, replacing Janet Yellen
(http://www.marketwatch.com/story/yellen-to-join-bernanke-at-washington-think-tank-2018-02-02).
Read:Stock-market melt-up takes a timeout as bond yields rise
(http://www.marketwatch.com/story/stock-market-taking-its-cues-from-bond-yields-2018-02-03)
Opinion:Tony Robbins on stock market corrections: Get used to
them
(http://www.marketwatch.com/story/tony-robbins-on-stock-market-corrections-get-used-to-them-2018-02-02)
What were strategists saying?
Michael Wilson, chief U.S. equity strategist at Morgan Stanley,
said he is in no rush to buy the dip
(http://www.marketwatch.com/story/morgan-stanleys-wilson-warns-investors-not-to-buy-the-dip-2018-02-05)
as there are growing worries about "unfunded" fiscal spending and a
Federal Reserve that "appears to be behind the curve" when it comes
to rates.
Read:Why stock-market investors need to worry more about fiscal
policy than the Fed
(http://www.marketwatch.com/story/why-stock-market-investors-might-need-to-worry-more-about-fiscal-policy-than-the-fed-2018-02-05)
"The panicky selloff and partial recovery was driven by
algorithmic programs, because humans don't make decisions that
fast. It's a mini flash crash," said Kim Caughey Forrest, senior
analyst and portfolio manager at Fort Pitt Capital Group. "To be
honest, we were getting uncomfortable by the relentless rally, so
this market now seems a lot more normal," Forrest said.
See:A 'Powell put' for the stock market? Don't even think about
it
(http://www.marketwatch.com/story/a-powell-put-for-the-stock-market-dont-even-think-about-it-2018-02-05)
"Unlike Friday, when selling was orderly and not on a huge
volume, today's selloff was definitely panicky," said Joe Saluzzi,
partner, co-head of Equity Trading at Themis Trading. "Today's
volume is well over 10 billion and all the buyers disappeared."
Randy Frederick, vice president of trading and derivatives for
Charles Schwab, noted that stocks have "been going almost straight
up since the start of the year," which meant a pullback was both
"expected and healthy" in his view. "It doesn't mean the bull
market is over; it simply takes away some of the froth and
irrational exuberance from stocks and puts us back on a more
sustainable trendline."
Bank of America Merrill Lynch warned Friday
(http://www.marketwatch.com/story/bank-of-america-sell-signal-triggered-for-stocks-2018-02-02)
that a sell indicator has been triggered for the market as $102
billion has flowed into global equities in 2018. That is amid
widespread concerns over valuations.
Which stocks were key movers?
Wells Fargo Inc.(WFC) skidded 9.2% after the bank said Federal
Reserve sanctions over customer-accounts scandals could cut into
profit by as much as $400 million this year
(http://www.marketwatch.com/story/wells-fargo-says-impact-from-fed-sanctions-may-reach-400-million-2018-02-03).
The stock was the biggest decliner among financial shares, although
the sector was broadly lower.
Bristol-Myers Squibb Co.(BMY) fell 4% despite reporting positive
results for advanced lung-cancer trial results
(http://www.marketwatch.com/story/bristol-myers-surges-56-on-advanced-lung-cancer-trial-results-q4-earnings-2018-02-05),
along with fourth-quarter profit and revenue beats.
Qualcomm Inc.'s stock (QCOM) slid 6.6%, erasing a premarket gain
that came after Broadcom Ltd.(AVGO) boosted its bid to buy the chip
maker
(http://www.marketwatch.com/story/broadcoms-sets-best-and-final-buyout-bid-for-qualcomm-at-82-a-share-2018-02-05)
by 17% to a "best and final offer" of $82 a share. Broadcom was
down 3.1%.
Corcept Therapeutics Inc.(CORT) tumbled 26% after the drugmaker
disclosed that it had been informed Teva Pharmaceutical Industries
Ltd. (TEVA)had submitted a new drug application
(http://www.marketwatch.com/story/corcepts-stock-tumbles-after-teva-submits-nda-for-generic-korlym-2018-02-05)
for a generic version of Corcept's hyperglycemia treatment Korlym.
U.S.-listed shares of Teva fell 4%.
What are economic data saying about the economy?
On Monday, the IHS Markit purchasing managers index for services
fell to 53.3 in January from 53.7.
A survey that tracks the performance of service-oriented
companies such as hotels, restaurants and banks surged in January
to a 13-year high of 59.9, the Institute for Supply Management said
(http://www.marketwatch.com/story/employment-hits-all-time-high-in-survey-of-most-us-businesses-ism-finds-2018-02-05).
Employment activity set a record.
How did other assets fare?
European stocks
(http://www.marketwatch.com/story/european-stocks-covered-in-sea-of-red-as-global-selloff-picks-up-steam-2018-02-05)
were a sea of red, while Asian markets suffered a broad selloff
(http://www.marketwatch.com/story/asian-markets-pull-back-following-wall-streets-friday-flop-2018-02-04),
with the Nikkei 225 index tumbling 2.5%, its biggest one-day drop
since Nov. 9, 2016.
Gold futures were sightly firmer, while oil futures dropped
sharply (Bristol-Myers Squibb Co.
(TICKER:BMY)%c2%a0will%20report%20ahead%20of%20the%20bell%20on%20Monday.)
and the ICE U.S. Dollar Index rose 0.4%.
Digital currencies continued their recent retreat
(http://www.marketwatch.com/story/bitcoin-drops-below-8000-after-another-bank-ban-on-credit-card-buying-hits-2018-02-05)
as bitcoin traded slightly above $7,000, trading at levels last
seen in November. The world's largest cryptocurrency has lost more
than half its value since a high reached in December.
(END) Dow Jones Newswires
February 05, 2018 16:46 ET (21:46 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.