Markets slipped into a correction on Thursday after a 1,000 point decline in the Dow. Both the S&P 500 and the blue-chip index closed 10% below their respective record closes on Jan 26. Further, the CBOE Volatility Index surged once again after declining for two straight sessions. Meanwhile, market watchers speculated a possible government shutdown would ensue if the budget deal is not passed by the Senate. Finally, the initial jobless claims hit a 45-year low.
The Dow Jones Industrial Average (DJI) decreased 4.2%, to close at 23,860.46. However, the S&P 500 fell 3.8% to close at 2,581. The tech-laden Nasdaq Composite Index closed at 6,777.16, losing 3.9%. The fear-gauge CBOE Volatility Index (VIX) increased 14.5% to close at 31.76.
A total of around 10.6 billion shares were traded on Thursday, lower than the last 20-session average of 8.2 billion shares. Decliners outnumbered advancers on the NYSE by an 8.26 -to-1 ratio. On Nasdaq, a 5.58-to-1 ratio favored declining issues.
Markets in Correction, Major Stocks Pull Back
The Dow suffered severe losses after plummeting as much as 1,033 points on Thursday. This is the blue-chip index’s second decline by over 1,000 points during this week. Such a dip also led the Dow to finish 10.4% off its record close on Jan 26, 2018, charting its second-biggest decline in terms of points since its inception.
Also, this marked its third decline by more than 500 points in a matter of five days. The blue-chip index finished at its lowest level since Nov 28, 2017 and is set to post its worst weekly decline since October 2008. Despite these losses, the Dow still managed to finish above its lowest close for the week of 23,778.74 that it hit on Tuesday.
Losses for the Dow were broad based. Shares of American Express (AXP – Free Report) , Intel (INTC – Free Report) and JP Morgan (JPM – Free Report) declined 5.6%, 5.4% and 4.4%, respectively, contributing majorly to the Dow’s losses.
The S&P 500 bled 100.7 points to end in negative territory, finishing 10.2% off its all-time high. This was it lowest close for the week, finishing below the 2,600 level and falling below its 100-day moving average. The broader index has dipped more than 2% over three of the last five sessions.
All of the 11 major sectors of the S&P 500 ended in negative territory, with financial and technology shares leading the decliners. The Financial Select Sector SPDR ETF (XLF) and the Technology Select Sector SPDR ETF (XLK) declined 4.4% and 4.1%, respectively.
Meanwhile, the Nasdaq tanked 275 points to end in the red after a bloodbath in the tech shares. Shares of Facebook (FB – Free Report) , Amazon (AMZN – Free Report) and Microsoft (MSFT – Free Report) plummeted 4.8%, 4.7% and 5.1%, respectively. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Broader markets suffered huge losses on Thursday following concerns over increasing market volatility, a possible surge in inflation which might lead to a rate hike and an increase in bond yields. Analysts also stated that this correction was just a pullback from massive gains scored for the major part of 2017 and the first month of 2018. Market watchers also speculated a government shutdown would come about if the Senators do not pass the budget deal by midnight.
CBOE VIX Rears its Ugly Head Again
Having fallen for two consecutive sessions, the CBOE Volatility Index (VIX) surged almost 24% in intraday trade to 34.48. However, the fear gauge mellowed down to 14.5% by the end of the session. The index of market uncertainty has shown severe fluctuations over the week, highlighting the frenzy that market watchers have gone through over this period. Such panic has arisen primarily out of speculations regarding a hike in inflation even as the economy has been burgeoning.
Possibility of Partial Federal Shutdown
Leaders from Congress announced on Wednesday that they had agreed upon a two-year budget deal to end the uncertainty regarding government spending and immigration laws. Such tensions had led to a government shutdown earlier in the month. Agreement on the budget legislation came months after both Republicans and Democrats tried to reach a consensus on the deal.
The deal seeks to increase federal spending by $300 billion over the next two years. This would exceed the ceiling that was imposed by in 2011. The deal increases military spending by $80 billion over the remainder of the fiscal year through September and further by $85 billion in fiscal 2019. This comes over and above the emerging war funds of about $140 billion.
The new agreement also seeks to extend funding for the Children’s Health Insurance Program by 10 years and spare another $80 billion for disaster relief funding. Moreover, the legislation also beefs up non-defense spending by $63 billion for this year and by $68 billion for 2019.
The future of the deal is uncertain as it requires the support from the Democrats, who are expected to out rightly oppose any surge in government spending. Further, House Minority Leader Nancy Pelosi wants a vote in favor of the protection of undocumented immigrants termed as ‘Dreamers’, in return for voting in favor of the budget spending. This issue has gone unaddressed in the $300 billion deal. Finally, if the deal is not passed by the midnight, the U.S. is headed for another partial federal shutdown.
Jobless Claims near a 45-Year Low
Initial jobless claims for the last week came in at 221,000 as opposed to 230,000 for the previous period. The consensus estimate for the current period was 233,000. The monthly average of the jobless claims plummeted 10,000 to 224,500 on Thursday. This marks its lowest level since March 1973.
Stocks That Made Headlines
Viacom Q1 Earnings Surpass Estimates, Decrease Y/Y
Viacom (VIAB – Free Report) reported mixed results in the first quarter of fiscal 2018 (ended Dec 31, 2017), wherein earnings per share outpaced the Zacks Consensus Estimate but revenues lagged the same. (Read More)
21st Century Fox Q2 Earnings & Sales Beat Estimates
Twenty-First Century Fox, Inc. (FOXA – Free Report) delivered better-than-expected earnings for the seventh straight quarter, when it reported second-quarter fiscal 2018 results. (Read More)
Mohawk Beats Q4 Earnings, International Business Solid
Mohawk Industries, Inc.’s (MHK – Free Report) fourth-quarter adjusted earnings per share (EPS) beat the Zacks Consensus Estimate. (Read More)
World Wrestling Q4 Earnings & Sales Beat Estimates
World Wrestling Entertainment Inc. (WWE – Free Report) delivered robust quarterly results for the third straight quarter, when it came out with fourth-quarter 2017 financial numbers. (Read More)
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