Analysts try to explain the biggest drop on equities. The index capped its worst day since the first time the U.S. lost credit rating, topping the collapse that followed China’s shock devaluation of the yuan, the Brexit selloff and anxieties heading into the presidential election. The Dow Jones Industrial Average’s 4.6% loss on Monday was its largest in percentage terms since August 2011, and in absolute numbers, the 1,500 points loss was the worst intraday fall in market history.
Repercussions of Friday’s US jobs report caused a huge sell off in the global equities market. The trigger for the sell-off was a sharp rise in U.S. bond yields following Friday’s data that showed U.S. wages increasing at the fastest pace since 2009, raising the alarm about higher inflation and with it potentially higher interest rates. Higher inflation would lead to higher rates and, in turn, rising borrowing costs for companies.
U.S. stocks plunged the most in 6 1/2 years, with the Dow Jones Industrial Average losing more than 1,100 points, as the equity selloff reached a fever pitch amid rising concern that inflation will force interest rates higher. VIX soars. Volatility roared back into American equity markets, as the S&P 500 Index sank 4.1% to wipe out January’s gains and even fell in the negative territory for the year. The Cboe Volatility Index increased more than double its highest level in 2 1/2 years.
Some analysts also believe markets tend to get a bit nervous when the U.S. Federal Reserve has a new leadership. The new Fed chief Jerome Powell, succeeded yesterday Janet Yellen. He is expected to continue Yellen’s stance of gradual tightening. Still, some investors regard a change in the Fed leadership as a source of policy uncertainty.