The Dow Jones industrials plunged more than 1,000 points Thursday, deepening a weeklong sell-off and dragging the stock market into an official “correction” for the first time in two years as fearful investors sought to get out before their losses mounted.
The rout marked a stark turnabout in investors’ mood from just two weeks ago, when indexes set their latest record highs. Since then, the Dow and the Standard & Poor’s 500 have fallen 10 percent, Wall Street’s traditional definition of a correction.
“In January, we talked about fear of missing out. What we have now is what I call fear of getting caught,” said Tom Martin, senior portfolio manager with Globalt Investments.
The market began falling in the first few minutes of trading, and the pace of the declines worsened as the day wore on. Many of the companies that rose the most over the last year have borne the brunt of the selling. Facebook and Boeing have both fallen sharply.
A hint of rising inflation and interest rates last week was all it took to set off a cascade of investor angst.
After huge gains in the first weeks of this year, stocks started to tumble last Friday after the Labor Department said workers’ wages grew at a fast rate in January.
That’s good for the economy, but investors worried that rising wages will hurt corporate profits and could signal an increase in inflation. A pickup in inflation could prompt the Federal Reserve to raise interest rates at a faster pace, which would act as a brake on the economy. Inflation can also send bond yields higher, which makes it more expensive for individuals, companies and even the U.S. government to borrow money.
Scott Wren, senior global equity strategist for Wells Fargo Investment Institute, said investors are worried that the higher wages could eat into corporate profits and that the Fed could “make a mistake” and raise rates too quickly.
The Dow Jones industrial average lost 1,032.89 points, or 4.1 percent, to 23,860.46. Boeing, Goldman Sachs and Home Depot took some of the worst losses.
The S&P 500, the benchmark for many index funds, shed 100.66 points, or 3.8 percent, to 2,581. Even after this week’s losses, the S&P 500 index is up 12.5 percent over the past year. The Nasdaq composite fell 274.82 points, or 3.9 percent, to 6,777.16.
Corrections are seen as entirely normal occurrences, and the market, currently in its second-longest bull run of all time, has not seen one in two years, an unusually long time. Many market watchers have predicted a pullback for some time, saying stock prices have become too expensive relative to company earnings.