If you look at a chart of the Dow Jones Industrial Average over the last ten years, you see an almost unbroken upward trajectory that started early in 2009 at the depth of the Great Recession, and continued until nearly the end of January of this year.
But, as January wrapped up and February began, the clear sailing of earlier years appeared to come to a rather abrupt end. Something shifted in the equities markets. The Dow Jones (and other indexes) began to see-saw wildly from day to day. As I write this column, the Dow has dropped by more than 2,000 points since its January 26th peak.
According to an article in Barron’s, “What Broke the Market… and What Comes Next” (Feb. 10, 2018), the specific catalyst for this destabilization was the release of the January payrolls report showing an unexpectedly sharp increase in wage growth. Inflation fears that had been lurking in the shadows were suddenly front and center. Ten-year Treasuries had already begun a slow rise, climbing from barely over 2% as recently as September 2017 to 2.66% on January 26. In the wake of the payroll report, they jumped up to 2.84% by Feb. 2 and have been trending upward since that time. In late April, they pushed past the 3% threshold, although they have fallen back to the high 2% range since then.