Dow slides nearly 1,000 points for worst day since October 2020

[mahatmakanejeeves]

Source: Washington Post

BUSINESS

Dow slides nearly 1,000 points for worst day since October 2020

The S&P 500 erases 2.8 percent and the Nasdaq 2.6 percent amid signals the Fed will raise rates at a more aggressive clip

By Aaron Gregg
Today at 1:52 p.m. EDT | Updated today at 4:08 p.m. EDT

Stocks tanked Friday — with the Dow tumbling nearly 1,000 points — as investors absorbed increasingly hawkish signals the Federal Reserve would raise interest rates at a more aggressive clip.

The Dow Jones industrial average closed down 981.36 points, or 2.8 percent, to end at 33,811.40 and mark its fourth-consecutive weekly decline. The broader S&P 500 index shed 121.88 points, or 2.8 percent, to settle at 4,271.78, while the tech-heavy Nasdaq tumbled 335.36 points, or 2.6 percent, to close at 12,839.29.

It was the Dow’s worst day since October 2020, according to MarketWatch, bringing the blue-chip index 1.9 percent lower for the week. It’s down about 7 percent year to date. ... The S&P 500 fell 2.8 percent this week and has shed 10.4 percent since the start of the year. Nasdaq slumped 3.8 percent this week and has lost 17.9 percent year to date.

[Five charts explaining why inflation is at a 40-year high]
https://www.washingtonpost.com/business/2022/inflation-charts/

Fed officials dampened market sentiments after signaling the central bank could push through bigger interest rate hikes to bring inflation under control. Investors had already been planning for a series of rate increases of 0.25 percent. Fed Chair Jerome H. Powell made clear a 0.5 percent increase is a distinct possibility, while St. Louis Fed chief James Bullard said 0.75 percent should not be ruled out.

{snip}

By Aaron Gregg
Aaron Gregg is a general assignment reporter for the Washington Post. His coverage focuses on the labor market, corporate accountability, and economic issues of all sorts. Twitter https://twitter.com/Post_AG

Read more: https://www.washingtonpost.com/business/2022/04/22/stock-market-interest-rates/

[Anon-C]

1. ...

[progree]

2. All according to plan ... must clamp down on them greedy workers

Early signs that the Fed's plan might be working: Morning Brief, Sam Ro, Contributor, Yahoo Finance, 4/22/22

https://finance.yahoo.com/news/early-signs-that-the-feds-plan-might-be-working-morning-brief-201032265.html

... After the March Federal Open Market Committee meeting, Fed Chair Jerome Powell said the labor market was “tight to an unhealthy level.” Specifically, he noted that at the time there were 1.7 job openings for every unemployed person. He argued that this extraordinary demand for labor has fueled significant wage inflation, which in turn has helped spur inflation across the economy.

(graph: Job postings on Indeed are falling, which is presented as good news)

It’s still early days in the Fed’s tightening effort. But so far, we’re getting early indications that job openings can indeed decline without forcing unemployment significantly higher.

If this trend is confirmed and it continues, then the Fed thinks we should begin to see wage growth slow down, which in turn should cause broad inflation reading to cool. We shall see.

========

Inflation is all the greedy workers' faults, or something, I guess , even though their wage increases aren't keeping up with price increases,

========
Some more Powell remarks from Thursday (I put all his remarks that were scattered throughout the article into two adjacent paragraphs) :

https://finance.yahoo.com/news/stock-market-news-live-updates-april-21-2022-223058644.html

Stocks dropped and Treasury yields climbed Thursday afternoon after Federal Reserve Chair Jerome Powell suggested he saw the case for front-loading interest rate hikes with 50 basis-point increases in order to quickly address persistent inflationary pressures. "It’s absolutely essential to restore price stability. Without price stability, really economies don’t work without price stability. We need that to have a strong labor market over an extended period of time. We need it for financial stability. So we must do that.”

“We really are committed to using our tools to get 2% inflation back," he added. "It is appropriate in my view to be moving a little more quickly. And I also think there is something in the idea of front-end loading … that points to the direction of 50 basis points being on the table.”

========================
Emily McCormick of Yahoo Finance joined the chorus last Thursday (April 14)

https://finance.yahoo.com/news/weekly-jobless-claims-week-ended-april-9-2022-174045858.html

Nevertheless, the underlying trend in the claims data has undeniably pointed to a labor market still short of sufficient worker supply to meet demand. Labor costs have risen for companies across industries as a result, and contributed to a further jump in inflation

Yes, Emily, yes, yes, yes. America's workers say, as they chomp on their fat cigars (wrapped in $100 bills),

"Greed is Good, Greed is Right, Greed WORKS!"

Perhaps you might consider that they are just trying to keep up with rising prices, and not succeeding on average.

Real average hourly earnings of production and non-supervisory workers in 1982-1984 dollars (i.e. inflation-adjusted):

March 2021: $9.78
March 2022: $9.55
Down 2.4%
https://data.bls.gov/timeseries/CES0500000032

And the second half of McCormick's report is all inflation inflation inflation.

And McCormick's unemployment insurance claims report yesterday, as usual, after acknowledging the 50+ year low of continuing claims, made the 2nd part of her story all about the tight labor market and inflation inflation and it endangering corporate profits

https://finance.yahoo.com/news/weekly-jobless-claims-week-ended-april-16-2022-182808572.html

"We've also seen inflation, and we're seeing labor and wage pressure," Borthwick said.

And rising labor costs as companies compete for talent could ultimately exert even further pressure on corporate profit margins.

"For companies, labor costs, which account for roughly 70% of total costs, are far more important that materials costs," Rubeela Farooqi, chief economist at High Frequency Economics, wrote in a note Tuesday. "While wage gains are not keeping up with price increases, building cost pressures are a risk for company bottom lines."

"Before-tax corporate profits rose 25% year-over-year in Q4 2021 after 27% in Q3 and 69% in Q2. But with the Fed moving to dampen demand, how long will businesses be able to pass on increasing cost?" she added. "The silver lining may come from a rebalancing of labor supply and demand, which could provide relief to businesses on wages going forward."

On that optimisitc note, the report ends.

=========================
S&P 500 is now down 11.0% from its Jan 3 all-time closing high

[twodogsbarking]

3. Not to cause a panic but stocks might be a tiny bit overvalued.

[Rebl2]

4. How about houses

We had to sell my parents house in 2018 and got a lot more for it than I thought it was worth. I was fine with that, but was surprised because it needed a lot of work.

[The Mouth]

5. I could sell my

950 square foot house, that I've lived in for 52 of my 60 years, on 1/10th acre, for at least $650K.

And, after spending a non-trivial amount of my life taking care of this pre-WW2 house, whoever buys it will bulldoze it all down and build something completely new.

As much as I hate seeing the market go down so much, I know of two facts that mitigate my worry: I have a timeframe of 10-20 years before I need my 401K; it WILL go up again, eventually/ Lots of what's in there was bought in 1990-2011, and yes, some went WAY down; but it tracks the market as a whole, which means that I bought at 9000, it went to 4250, but now is at 32,000. An index fund goes up if you have a timeframe measured in decades and have dollar-cost averaged in. But 1000-point drops look dramatic on headlines.

And secondarily, this is the result of the Fed probably taking action to do what it has to do to cool-off inflation. Inflation is always a two-edged sword: if you have bought things on credit *and* have an income that is generally (or close to) keeping up with it, it's great; on the other hand, if you are on a fixed income, or your income doesn't keep up with inflation, you're fucked. It can be a cruel 'tax' that lands on the most vulnerable the hardest

[twodogsbarking]

13. Lots of manipulating in the real estate market and financing.

History will repeat.

[The Mouth]

15. Yep

Real estate bubbles seem to be the rule rather than the exception. On one hand I'm a beneficiary (more or less, really only if I sell), on the other, it's sad that prices keep going up. But we can't really build any more here (Sonoma County) because we don't have any more water.

[IronLionZion]

6. The Fed has been telling us their moves for a while now

It shouldn't be a surprise that they plan to raise rates to try to control inflation.

Travel stocks are soaring. So is oil/gas.

Manufacturing is hurting. Many parts of the supply chain are still down from the pandemic.

[Rebl2]

8. Yes they

have-since late last year. Everything you say is true and nobody should be surprised.

[Linda Ed]

19. I remember

like it was yesterday back in November 1979 when Reagan raised bank rates on housing and we just missed it by one month cause fortunately we were locked in at over 9% He raised the rate to 20% due to inflation and rising oil prices and gov't spending..It was horrible.....People complaining about a 4% rate now have no idea what 20% or even 9% was like...Housing construction was almost dead as people did not want to build a home back then..

WE NEED another FRANKLIN D ROOSEVELT....Clinton led us into the black and the rethugs put us right back into the red that we WILL NEVER get out of!!

[GB_RN]

7. The Markets Are Overvalued...

Because of stock buybacks, etc. They're way past the point of a correction.

[Calista241]

10. Buybacks didn't cause the market-wide over-valuation of stocks.

There simply aren't enough consequential buybacks to result in a 20% - 30% uplift in stocks values market wide.

The uplift was caused by the Fed flooding the market with liquidity during Covid. While necessary at the time, we're now going to suffer through a pretty serious correction in an election year.

There is never a free puppy when it comes to macroeconomics. In exchange for not going into a major depression during COVID, we're now going to pay the piper with a pretty strong correction, and possibly even a recession. The Fed and the government is doing everything they can to minimize it, but it's not an exact science.

[mahatmakanejeeves]

12. They usually refer to the phenomenon as a "free lunch," but the judges will accept this answer.

There is never a free puppy when it comes to macroeconomics.

Thanks for writing.

[progree]

14. We have fluffy puppies on our mind

https://finance.yahoo.com/news/the-fluffy-puppy-indicator-signaling-a-recession-162927588.html

The Fluffy Puppy Indicator is flashing red for the U.S. economy, Brian Sozzi · Anchor, Editor-at-Large, Yahoo, Finance, 4/21/22

... As higher prices for gas and food has consumers sharpening their budgets for the months ahead, it looks like their cuddly pets aren't immune to the cutbacks.

Over the four-weeks that ended April 9, sales of pet supplies — in other words non-food items that pets don't need to live — fell 1.9%, according to the latest data from Nielsen. That's a sharp drop-off from the 12-week average increase of 3.6%.

Pet grooming sales also plunged 19.2% while dog accessories fell 12.1% and pet bed sales declined 12.7%. The lone increase of any size came in cat litter, which saw an 11.7% gain.

[Warpy]

9. All because the Fed talked about a timid half percent rate hike

Hedge funds and day traders sure are easily panicked.

[VarryOn]

11. My 401(k) is down 26% YTD....

Hopefully, I'm the exception. I thought I was diversified, but it's apparently not diverse enough.

[Number9Dream]

17. Yeah, my IRA has taken a beating this year so far

And I only have like 15% in low risk, conservative mutual funds.
More to hurt us in the mid-terms.

[lonely bird]

16. Many factors...

https://www.forbes.com/sites/palashghosh/2021/06/16/companies-buying-back-their-stock-at-pre-pandemic-levels-a-sign-of-economic-optimism/?sh=35298fda3fe1

There is no such thing as a natural level of employment or unemployment. Calling the labor market “tight” is a term of art. If business needs employees then pay them. Of course, this automatically translates into higher prices because of attempts to stave off declining margins. Large corporations could also cut compensation of top management to perhaps bring on more workers but that won’t happen. The top management believes that they are wizards of business and much more valuable than workers. Perhaps a better idea would be to decouple compensation from stock options. Stock options encourage short-term thinking.

What will likely happen is that interest rates will jump and a recession will happen. The question will be whether or not it will be as bad as the Volcker recession.

Oh, and the stock market is uncoupled from the real economy. It does not reflect impacts on labor but reflects what wealth/capital wants/fears.

https://www.macrotrends.net/1319/dow-jones-100-year-historical-chart

[Linda Ed]

18. lots of manipulating

everywhere right now for sure...

Saudi Arabia and other authoritarian gulf states are trying to drive up oil prices and crash the American economy in order to get Trump back in office. The Saudis are paying Trump's inner circle billions while actively sabotaging our economy.

This should be a much bigger story.

https://theintercept.com/2022/02/23/ukraine-russia-gas-prices-saudi-arabia-biden/