CNBC did an analysis of the current stock market volatility. The news report focused on what happened in the last week as well as the possible causes of this downward spiral.
The entire snowball effect started the previous Friday, when the jobs data was released. It showed that wages had risen, which taken as a sign that inflation is also going to rise.
Due to the panic, the Dow Jones Industrial Average dropped by 666 points before it experienced the two worst drops in its entire history. On Monday, the index fell 1,175 points for the first time in its history. Then, on Thursday, the Dow dropped another 1,033 plus points for the second time. Finally, on Friday, the Dow saw some relief as the index rose 330.44 points by the end of the day. The index closed the week at 24,190.90, a 1.38% rise for Friday, but an overall 5.2% drop for the week.
The S&P 500 Index also had a similarly bad week. CNBC reported that 367 of the 500 S&P companies (which is a whopping 73%) dropped by 10% or more last week. And of that 73%, another 18% had dropped by more than 20%. The index reached an all-time high before this drop. And again, just like the Dow Jones Industrial Average, the S&P 500 regained some of its footing on the last day of the week. The S&P 500 was up by 1.49% to close the day (and week) at 2,619.55 points. However, for the week, the S&P was down by 5.2%.
The Nasdaq Composite also had a rough week, losing more than 1,000 points before stabilizing on Friday. On the last day of the week, the tech index went up by 1.44% to close trading at 6,874.49 points. For the week, the Nasdaq lost 5.1%.
Individual companies also struggled with the week. Amazon caused more panic in the market after new reports were released saying that the tech giant was going to enter the delivery services segment. UPS and FedEx saw a drop in share prices on the back of this news. 3M, Exxon Mobil and American Express also were down.
The yield on the 10-year treasury benchmark shot up to 2.9%, just 0.1% short of the dreaded 3% mark. This was the highest the yields had gone in more than 4 years. When yields on bonds start rising, it is an indication that the market is going to slump. The rise in the treasury yields caused the market to panic, leading to what analysts term “fear of being left behind”. This fear caused the huge selloff that lasted throughout last week.
The CBOE Volatility Index (VIX), the index that measures market volatility and fear, shot up to 50 earlier in the week before closing the week still high at 40.
The turmoil in the US stock market caused a ripple effect in markets across the world. The Japanese Nikkei 225 Index was down by 2.3%, which took its total loss to 11.4% from its 52-week high. The German DAX Index dropped by 1.25%, which took its losses to 11% from its 52-week high.
Jim Bianco, the head of Bianco Research, said that protection that the government had been providing in the form of lowered interest rates and easier regulations was coming to an end. That, coupled with rising inflation is what prompted the market selloff this week. Bianco stated that this was the first time since the financial crisis that there has been a 10% drop in stocks not accompanied by a large drop in interest rates.