The Dow Jones industrials plunged more than 1,000 points for the second time this week as a sell-off in the stock market deepened Thursday.
The weeklong rout marks a stark turnabout in investors’ mood from just two weeks ago, when indexes set their latest record highs. The Dow and the Standard & Poor’s 500 are now down 10 percent since then, known on Wall Street as 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 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, hasn’t seen one in two years, an unusually long time. Many market watchers have been predicting a pullback for some time, saying stock prices had become too expensive relative to company earnings.
The market began falling in the first few minutes of trading and the pace of the declines got worse 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 rising 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 it will hurt corporate profits and that rising wages are a sign of faster inflation. It could prompt the Federal Reserve to raise interest rates at a faster pace, which would act as a brake on the economy. It 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.
Stocks aren’t falling because investors have doubts about the economy. Employers are hiring at a healthy pace, with unemployment at a 17-year low of 4.1 percent. The housing industry is solid. Manufacturing is rebounding. Households and businesses are spending freely. Personal debt has lightened since the financial crisis a decade ago. And major economies around the world are growing in tandem for the first time since the Great Recession.
“If you put $100 into the market at the Jan. 26 peak, you’d still have $90,” said Greg McBride, chief financial analyst for Bankrate.com. “This is just some healthy, and overdue, volatility to wring out any excess.”
Economies around the world are strengthening and corporate profits are on the rise. That combination usually carries stocks higher. But stock prices climbed faster than profits in recent years. Many investors justified that by pointing out that interest rates were very low and few alternatives looked like better investments. If rates rise quickly, that argument becomes much less persuasive.
Martin, of Globalt Investments, said he didn’t see anything specific moving the market lower Thursday. He said investors are now selling because they are afraid of bigger losses if they stand pat. That’s also a big change: the market has been stable in the last year because every time it inched lower, investors swooped in looking for bargains and soon sent them higher again.
“This is going to take longer to work out than people expect,” he said.