On Friday, the stock market took a sharp tumble, with the Dow dropping more than 600 points, the biggest single-day decline since Brexit and the biggest weekly decline in two years.
It wasn’t just the Dow. The declines were widespread, affecting stocks, bonds, and commodities. And the major indices, including the Standard & Poor’s, NASDAQ, and Dow Jones, dropped about 2 percent each. (The Dow’s decline was closer to 2.5 percent.)
While those percentages may seem small, they represent notable drops for a market that has been on an upward trajectory—with only a few small and short-lived corrections—for the better part of nine years.
Why is this happening? The short answer is: panic over the possibility of higher interest rates. On Friday morning, the Bureau of Labor Statistics released its monthly jobs report, which showed that in January, average wages increased the most in any month since 2009. While that’s good news for most Americans, it can signal that inflation might soon increase, which might in turn cause the Federal Reserve to raise interest rates more quickly than expected—making borrowing money more expensive for companies (and individuals). That’s the sort of thing that might make investors think twice about putting their money into the market.
Still, most analysts don’t think that Friday’s performance spells trouble for the economy more broadly. Instead, the correction, which many say is overdue, may signal that the market is returning to more-normal growth patterns, which include more volatility than has been seen in recent years.
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