Two days of steep losses erase market's gains from the start of the year, ending a period of record-setting calm for stocks.
Wall Street stocks plunged in chaotic trading on Monday, as the Dow's gains for 2018 were erased in a brutal pullback from months of stock market euphoria that had been acclaimed by President Donald Trump.
The Dow Jones Industrial Average saw its steepest ever one-day point drop, wiping 4.6 percent off the value of America's 30 largest companies to finish at 24,345.75, having at one point plummeted nearly 1,600 points to a low of 23,923.88.
Responding to the market sell-off, the White House said Trump was focused on the long-term health of the US economy, claiming the fundamentals were "exceptionally strong."
White House spokeswoman Sarah Sanders cited "strengthening US economic growth, historically low unemployment and increasing wages for American workers."
Since coming to office, Trump has repeatedly touted day-to-day stock market increases as evidence his administration is succeeding. The White House had dubbed it the "Trump bump."
But Wall Street stocks have been on shaky ground for the last week amid concerns over elevated US Treasury bond yields and the likelihood of additional federal reserve interest rate hikes this year as the US economy strengthens.
Will soon be heading to Davos, Switzerland, to tell the world how great America is and is doing. Our economy is now booming and with all I am doing, will only get better...Our country is finally WINNING again!— Donald J. Trump (@realDonaldTrump) January 25, 2018
During a speech in Ohio on Monday, Trump again touted the benefits of his tax cut plan – but dropped his stock reference to the success in the market.
Monday's losses, which deepened a decline begun on Friday, erased the 2018 gains for both the Dow and S&P 500, which were bolstered by euphoria over the passage of Trump's tax cut legislation at the end of 2017. The Nasdaq remained marginally higher on the year.
Equity markets in Europe and Asia, along with oil prices, also retreated amid a general aversion towards riskier assets.
"There is nervousness in the air," Gorilla Trades strategist Ken Berman observed in a note published early in the afternoon before US markets hit bottom.
Powell takes helm at Fed
A robust jobs report on Friday – which showed the US added 200,000 new positions in January; more than expected – contributed to the sell-off amid rising concern the Federal Reserve will accelerate the pace of monetary policy tightening.
The jobs data also showed strengthening wages, suggesting the long run of low inflation could be shifting just as new Federal Reserve Chair Jerome Powell – who was sworn in Monday – takes the helm at the US central bank.
The market's two-day dive has reintroduced volatility into US markets, something that was almost completely absent from trading throughout 2017 and in the first weeks of 2018.
But many analysts have pointed to creeping unease at the speed of the recent surge, which included the Dow's first-ever rise above 25,000 points and then 26,000 points less than two weeks later.
"We're finally getting the (long-discussed) five percent drop," JJ Kinahan, chief market strategist of TD Ameritrade, described the pullback as a "natural correction" after a surge that was never sustainable.
But Nicholas Colas, co-founder of Datatrek Research, said the pullback signifies that "the narrative around the US equity market has entered a new phase" from the prevailing storyline until now of slow and steady US growth.
While there is still reason for optimism, Colas said investors are also unsettled by questions over the unintended consequences of the US tax cuts. These consequences include higher federal debt and handing more money to consumers at a time "when the US economy is close to full capacity."
"The tax bill passed at the end of 2017, just as money managers were window dressing and in no mood to make major portfolio moves," Colas said. "As the calendar has turned to 2018, however, they have taken stock of the full effects of tax reform. And they don't like what they see."
Still, many analysts believe the market will recover.
"The correction seen over the past week is hardly a reason to panic," said John Higgins, an analyst at Capital Economics.