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Stock Market Panics on Treasury Yields, Fed and Trump’s Domestic Wars

Courtesy of Pam Martens and Russ Martens

Dow Jones Industrial Average Chart for February 5, 2018 Versus Flash Crash Chart of May 6, 2010.

Dow Jones Industrial Average Chart  for February 5, 2018 (top) Versus Flash Crash Chart of May 6, 2010 (bottom).

 

Jerome Powell Is Sworn In As Federal Reserve Chairman on February 5, 2018 by Fed Vice Chairman  Randal Quarles.

Jerome Powell (Right) Is Sworn In As Federal Reserve Chairman on February 5, 2018 by Fed Vice Chairman Randal Quarles.

 

In little more than a week, $4 trillion in global stock market value has vanished as quickly as a snow cone in July. The heretofore uncanny calm of a U.S. stock market setting regular new highs was punctured Friday with a 665.7 point selloff in the Dow Jones Industrial Average. That was followed by yesterday’s bungee dive in late afternoon that took the Dow down 1597 points followed by a quick partial retracement that left the Dow down 1,175 points on the day. (That plunge and retracement brought back memories of the Flash Crash of 2010. See charts above and our coverage: Flash Crash Report Raises Flags on Quasi Stock Exchanges Inside Wall Street Firms.)

On a point loss basis, yesterday’s decline was the largest in Dow history. On a percentage basis, it paled in comparison to the 22.6 percent decline on October 19, 1987 when the Dow lost 507.99 points.

As we began reporting on January 22 (see Rising Treasury Yields Pose Risk for Those Over-Weighted in Stocks) the stock market had become overly complacent toward the fierce rise in U.S. Treasury yields. We warned that this could “turn out to be a dangerous, slippery slope for those heavily weighted in stocks.” We also cautioned that: “The stock market has been riding the euphoria of anticipating the tax cut benefit to corporate earnings. It seems to have forgotten about what the attendant budget deficits would mean for rising Treasury yields and those higher yields providing a competitive seduction to investors who increasingly see the stock market as asset bubble terrain.”

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