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Dow Jones Plummets Again On Worries About Inflation

Dow Jones Plummets Again On Worries About Inflation

In Tuesday's trading, high-dividend companies including utility and real estate companies fell, as bond yields increased after a sharp drop on Monday.

The Standard & Poor's 500 index, the benchmark for many index funds, also wavered between gains and losses. The Nasdaq Composite was down 274 points, closing at 6,777.16, and the S&P 500 lost 100 points to close at 2.581.

Boeing rose 2.7%, providing the biggest boost to the Dow, while Amazon's 1% rise helped lift the S&P 500.

At one point it was down 1,600 points. The index is down 6.7 per cent in the year to date, making it the worst performer among top European bourses.

This also puts it in what is known on Wall Street as a "correction".

While the record point losses have caused anxiety for many investors, analysts say the correction signals a healthy economy adjusting to huge gains in recent months.

The bond market is a decent indicator of fears about inflation. "It's going to be a volatile ride for the next several trading sessions", said Chad Morganlander, portfolio manager at Washington Crossing Advisors in Florham Park, New Jersey.

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"People were positioned for more central bank easing or continued central bank easing, low rates, and importantly, low volatility", he said. The fear is that Treasury yields will rise to levels that make stocks less attractive and force the Federal Reserve to fight inflation by aggressively raising interest rates. To drum up demand for that higher supply, rates may have to go up. But if inflation picks up, the Fed could raise rates more often or more steeply than it had planned.

"There's some big-money players that have really leveraged to the low rates forever, and they have to unwind those trades", said Doug Cote, chief market strategist at Voya Investment Management. The Dow and S&P are now back in positive territory for 2018. On Tuesday it rallied another $5.22, or 14.7 percent, to $40.84. The euro was up 0.3 percent at $1.2435 while the dollar rose 0.3 percent to 109.38 yen.

Brent crude, used to price worldwide oils, lost 58 cents to $64.23 in London. Heating oil dipped 3 cents to $1.99 a gallon.

Elsewhere in commodities, the March crude contract was down 64 cents to US$61.15 per barrel and the March natural gas contract was down one cent to US$2.70 per mmBTU.

Investors often buy gold when they're anxious about market volatility, but they aren't doing that now.

Among stocks of local interest, Wynn Resorts Ltd. was down $8.04, or 4.53 percent, to $169.28. The index has, however, experienced larger percentage declines in its history.

On Monday, the Dow finished down 4.6 percent while the S&P 500 sank 4.1 percent, to 2,648.94. Trading volumes were 50 per cent higher than normal.