Weekly Economic Update-How Now Dow Jones

The big new of the week was obviously the unprecedented gyrations on Wall Street. Stocks plummeted from record highs, wiping out trillions of dollars of paper money, only to swing back to the high side, then fall again.

Experts say such volatility may be the new normal for a while.

There was another good jobs report, and the rise in construction jobs may signal more housing starts and improving inventories.

It’s easy to choose the biggest story of the week and for all we know, maybe next week as well. The Dow Jones Industrial Average hit an all-time high of 26,617 on January 26. No one made much mention of a near 500-point slide over the next four business days, but then came the Employment Situation report last Friday. As we will point out, it was a good report, but an already edgy Wall Street apparently thought it a little too good. It stoked existing fears about more rapid interest rate hikes (that there was a brand new Federal Reserve Chairman didn’t help), and potential inflation. By day’s end, the Dow was down 665 points--the sixth largest one-day loss in history.

Friday’s Dow didn’t hold the title long. By Monday it had slipped into seventh place as the trading floor’s unease turned into a rout. The market plunged 1,175 points, history’s largest one-day loss, 400 points greater than the previous record from September 29, 2008. At one point the market was down 1,579 points, a number with a significance we will get to in a second.

Tuesday was another wild ride. The Dow swung positive and negative over an 1,100-point range but finished nearly 600 points higher. By Wednesday things had settled down a little, staying in positive territory almost all day, but turned south in the last few minutes, finishing lower by what now seems like pocket change.

To put this into perspective, the plunge in points was historic, but the percentage loss, 4.6%, was only the 100th worst, far behind the 22.6% decline on Black Monday, October 19, 1987. The intraday 1,579-point trough, also a record, marked a 10% decline in the Dow, officially a market correction. Corrections are viewed as healthy, and this bull market had been expected to correct for some time.

Most experts say the crazy week was mostly notable for the return of volatility after nearly a decade of a market moving mostly straight up. More extreme market movements are likely, they say, as long as rate and inflation fears continue.

Good News or Bad News?

Despite the Wall Street reaction, January’s jobs report was a strong one, with 200,000 new jobs created, near the high end of economists’ predictions. That 36,000 of them were in construction was a hopeful sign for housing inventories. The December job estimate of 160,000 was a 12,000-job upward revision from the original report. The unemployment rate was unchanged at 4.1%, effectively full employment.

Wages were the highlight of the report, and probably the most important trigger for Wall Street. They rose 0.3% compared to December with a year-over year increase of 2.9%, the largest of the recovery to date.



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