On Feb. 8, the Dow Jones Industrial Average dropped over 1,000 points in the wake of a 1,100-point drop on Feb. 5, amounting to a ten percent drop from its 52-week high.
Analysts agree that there has been no specific headline that galvanized investors to incite the market’s fall; rather, investors may be predicting that the the Fed will hike up interest rates in the wake of January’s record rate of wage increases. Tracie McMillion, head of Global Asset Allocation Strategy of Wells Fargo Investment Institute, observed that “as we continue to add to the deficit, first with taxes, now with increased spending, and possibly with infrastructure spending, it adds up to better growth and higher GDP, but also potentially higher rates from the Federal Reserve.”
The volatility of the stock market is similarly reflected in the S&P 500, which saw a 3.7 percent drop by Thurs., Feb. 8, and recorded 32 52-week lows with no 52-week highs. The Volatility Index increased from roughly 14 at the beginning of February to over 50 on Feb. 6, reaching roughly three times the average level of the last year and leaving many investors in positions where efficient trades are necessary. Thurs., Feb. 8 featured a strong volume of trade with around 10.6 billion shares traded in US stock exchanges, exceeding the 8.2 billion daily average of the last 20 sessions.
The stock market’s dive on Feb. 5 occurred simultaneously with a drop in the cryptocurrency market. Due to fear of impending government regulation, Bitcoin dropped to below 7,000 dollars on Feb. 5 when the Dow plunged, but bounced back up to 8219.12 dollars by Feb. 7 – a 6.08 percent increase in a 24-hour window despite the additional 1,000-point drop in the market.
This relief rally in the rebounding crypto market is likely a result of the joint hearing on Feb. 6 between the Commodities and Future Trading Commission and the US Securities Exchange Commission that acknowledged the importance of virtual currencies in the modern economy. Jay Clayton, the chairman of the US Securities and Exchange Commission, offered an outlook of compromise that would stimulate progress and simultaneously work in the best interest of investors: “We should embrace the pursuit of technological advancement, as well as new and innovative techniques for capital raising, but not at the expense of the principles undermining our well-founded and proven approach to protecting investors and markets,” Clayton stated.
(Sources: Reuters, Wall Street Journal, NBC, CoinTelegraph)