Last month when the Dow Jones Industrial Average saw its speediest 1,000 point jump ever, some called it a “melt up” that would then lead to a meltdown. If the market this week is any indication, they may have had a point. On Monday, February 5th the Dow experienced the largest one-day selloff, shedding more than 1,100 points — although the 4.6% plunge pales in comparison to the 22.61% lost October 19th, 1987 or even the 7.87% on October 15th, 2008. Despite a few rallies here and there, the Dow has now sunk below where it opened at the start of this year.
A key factor behind the latest sell-off is due to the 10-year Treasury yield reaching 2.88%, marking a four-year high (it’s since fallen a bit). This has investors spooked about the impacts of inflation and rising interest rates. Strategist Ryan Detrick explained the current stock climate to CNN Money, “The bond market has definitely got the stock market’s attention. Is the bond market telling us something we don’t know? Is there more inflation down the road than we’re expecting?”
As mentioned, the Dow has staged some rallies, although those efforts have later been erased by further sell-offs. This has injected a volatility to the market that up until now had seen a pretty steady climb for a number of months. In fact Detrick suggests the U.S. market hasn’t experienced this level of volatility since the shocking Brexit vote in summer 2016. Evidence of this can be found beyond the Dow, as the S&P 500 has seen swings up or down a percentage point five times in the past two weeks compared to only eight times during all of last year.
Although this week has been rocky for investors (tip: don’t check your retirement accounts right now), this pullback has been a long time coming. Addititionally it’s still arguable whether this sell-off truly qualifies as a meltdown as guesses as to where we go from here are dime a dozen. So while the market is now remembering what volatility feels like, it’s nothing we haven’t experienced before and made it out of just fine.