All the three key indexes registered strong declines on Feb 5, with both the Dow and the S&P 500 closing in the red for the year. Rise in bond yields continued to have a broad-based negative impact on the markets. Also, markets lost some of their gains after the Fed stated that inflation was likely to reach its desired level in the medium term and projected a gradual increase in key rates.
Additionally, upbeat economic data including a strong jobs report continued to bolster rate hike chances as early as March. Moreover, the fear-gauge, CBOE Volatility Index (VIX), jumped to its highest level since August 2015, indicating market volatility. In this context, it is important to safeguard ones portfolio from such uncertainties and invest in low beta mutual funds.
Markets in Disarray, Volatility Highest Since 2015
A higher rate environment and steady economic growth, better wage growth and increased inflation weighed on bond prices. Lower bond prices supported the 10-year U.S. Treasury yield, which was at its highest settlement since 2014. Higher treasury yields continued to weigh on equity markets.
On Feb 5, the Dow slumped 4.6% or 1,175.21 points to 24,345.75, its biggest one-day fall since Aug 10, 2011, while the S&P 500 fell 113.19 points or 4.1% to close at 2,648.94, its largest percentage decline in a day, since Aug 18, 2011. Both the S&P 500 and the Dow finished in the red for 2018. Additionally, the tech-heavy index, Nasdaq, decreased 3.8% or 273.42 points to 6,967.53.
For the week ended Feb 2, the Dow, the S&P 500 and the Nasdaq declined 4.1%, 3.9% and 3.5%, respectively. Both the Dow and the S&P 500 registered their worst weekly performance since January 2016, while the Nasdaq’s weekly decline was the biggest since February 2016.
Moreover, on Feb 5 VIX jumped 130.7% to settle at 39.94, its highest level since August 2015. A reading above 20 is considered alarming and with volatility being almost double that level, indicates the broader market is clearly in turmoil.
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