Thread: Here's why the Dow is dropping

Here's why the Dow is dropping

by James Langford | Feb 5, 2018, 5:30 PM

Payroll growth of 200,000 during January, reported by the Bureau of Labor Statistics, outpaced economists’ projections of 175,000, while hourly earnings increased almost 3 percent. That pushed the likelihood that the Federal Reserve will raise short-term interest rates at its March meeting up five percentage points compared with the start of the week.

The central bank has already signed off on five 25 basis-point hikes since late 2015 after keeping rates near zero for seven years following the 2008 financial crisis, and another increase of the same size would take them to a range of 1.5 percent to 1.75 percent.

While steady upticks benefit banks, which juice margins by passing on increases more quickly to borrowers than depositors, they can be ominous for consumers with adjustable credit card rates and companies with low credit scores and high debt loads.

“Central banks are dialing down stimulus rather than continually adding to it as they have over the past several years,” Greg McBride, senior financial analyst for Bankrate.com, told the Washington Examiner.

A variety of political developments may also be weighing on markets, fueling the kind of uncertainty that unnerves investors. The release of a memo by Congressional Republicans criticizing how the FBI obtained a wiretapping warrant for a Trump aide heightened partisan bickering and put a spotlight, once again, on the FBI's probe of Russian meddling in the 2016 presidential election.

A Thursday deadline for Congress to reach a deal on government funding needed to avoid a shutdown is rapidly approaching, meanwhile, and lower revenue after the GOP-led tax cuts means lawmakers may need to raise the country's borrowing limit in early March, far sooner than expected, according to Chris Krueger of Cowen Washington Research Group.

Still, the U.S. economy is fundamentally sound, and the correction of the past two trading days — which was overdue, statistically — is likely to be short-lived, Bankrate's McBride said.

A tax overhaul passed by the GOP-controlled Congress in December has prompted corporations from JPMorgan Chase to Apple to ramp up investment in growth, and he said consumers with extra money in their paychecks are likely to spend more of it.

That, in turn, will buoy growth since consumers account for nearly 70 percent of the U.S. economy.

Historically, pullbacks prompted by positive economic news have averaged about 5 percent, UBS equity strategist Keith Parker said in a report, which would indicate the selloff is nearing its end. As of Monday, the Dow Jones index had dropped 7 percent in two days, while the S&P 500 fell 6 percent and the Nasdaq slid 5.7 percent.

“After-tax paychecks will rise 2 percent to 4 percent this month, making a sustained negative-data backdrop highly unlikely,” Parker wrote.

http://www.washingtonexaminer.com/he...rticle/2648163

I think it will drop a little more and then level off and start climbing back up. It got too high too fast. And higher interest rates entice more investors out of stocks and into bonds and mortgages.

Good time to invest or send in your 2017 IRA contribution before you do your taxes.