Feb 2, 2018 - Economy

Dow sinks 665 points in biggest drop since Brexit vote

Major U.S. stocks plummeted Friday, with the Dow sinking 665 points, amid signs that strong wage growth may lead to increased interest rates and inflation.

Why it matters: Today was the worst day for stocks since June 2016, after the Brexit vote in Britain. The plunge could signal that the equity markets had overheated after a remarkable 14 months sparked by booming consumer confidence and the promise of a major tax cut after Donald Trump was elected.

The numbers, per CNBC:

  • The Dow dropped 665 points (more than 2%), bringing the 30-stock index below 26,000.
  • The S&P 500 fell 1.8%, with energy stocks performing the worst.
  • The Nasdaq sunk 1.5%.

Driving the drop: Earlier today the Labor Department reported that the U.S. added 200,000 new jobs to the economy, while the unemployment rate stayed at 4.1%. The report also showed that hourly wages grew 2.9% in the last 12 months, the fastest pace in a decade — spurring concerns over inflation.

Between the lines: All this sets the stage for the Federal Reserve to increase interest rates.

"The key for the market today is rising interest rates. The old adage is: 'Bull markets don't die of old age, they are killed by higher interest rates.' That looms large."
— Mike Baele, managing director at U.S. Bank Wealth Management, to CNBC.
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