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| Dow and S.&P. Drop by More Than 4%, Extending Stock Sell-Off | |
| (35 minutes later) | |
| Since the global financial crisis a decade ago, a few simple guidelines have helped investors make sense of the markets. | Since the global financial crisis a decade ago, a few simple guidelines have helped investors make sense of the markets. |
| Global growth and inflation will be perpetually low. Central banks will help by keeping interest rates low. And stocks will almost invariably rise. | Global growth and inflation will be perpetually low. Central banks will help by keeping interest rates low. And stocks will almost invariably rise. |
| The rulebook is now changing, a shift that is sending tremors through the financial markets. The Standard & Poor’s 500-stock index fell by more than 4 percent on Monday, deepening its losses from the previous week and erasing its gains for the year. The Dow Jones industrial average sank by 4.6 percent. Bond yields, the basis for key borrowing costs such as mortgage rates, have risen fast in recent weeks. | |
| Investors are digesting the growth prospects for the world — and rebalancing their views on the risks and rewards of investing in risky assets like stocks compared to safer spots such as government bonds. | Investors are digesting the growth prospects for the world — and rebalancing their views on the risks and rewards of investing in risky assets like stocks compared to safer spots such as government bonds. |
| The world’s largest economies are all expanding, as the most important central bank, the United States Federal Reserve, is actively draining billions of dollars from the financial system and raising interest rates. And investors are concerned that tenuous signs of inflation could mean central banks will start to remove their support even faster. | The world’s largest economies are all expanding, as the most important central bank, the United States Federal Reserve, is actively draining billions of dollars from the financial system and raising interest rates. And investors are concerned that tenuous signs of inflation could mean central banks will start to remove their support even faster. |
| A rocky patch for the markets could become awkward for President Trump. He has repeatedly claimed credit for surging stocks, while business optimism over his push to cut taxes and lessen regulation has helped fuel the “Trump Bump.” | A rocky patch for the markets could become awkward for President Trump. He has repeatedly claimed credit for surging stocks, while business optimism over his push to cut taxes and lessen regulation has helped fuel the “Trump Bump.” |
| Mr. Trump’s habit of regularly boasting about stock market surges is a practice other presidents avoided. They knew that what goes up may go down again, and they did not want to take the blame for market forces beyond their control. | Mr. Trump’s habit of regularly boasting about stock market surges is a practice other presidents avoided. They knew that what goes up may go down again, and they did not want to take the blame for market forces beyond their control. |
| The economy is in tricky territory from a markets perspective. While investors have been excited about the prospects of the tax cuts, they are also fretting that the government may be spending too much to pay for them. | The economy is in tricky territory from a markets perspective. While investors have been excited about the prospects of the tax cuts, they are also fretting that the government may be spending too much to pay for them. |
| Economists often advise governments to run large deficits during recessions to stimulate growth. But the United States economy is already strong. | Economists often advise governments to run large deficits during recessions to stimulate growth. But the United States economy is already strong. |
| It grew at an annual pace of 2.6 percent last quarter. Unemployment was 4.1 percent January. | It grew at an annual pace of 2.6 percent last quarter. Unemployment was 4.1 percent January. |
| In essence, the $1.5 trillion tax cut is stimulus that the economy doesn’t need. The extra money raises the prospect that the economy could overheat, stoking inflation. | In essence, the $1.5 trillion tax cut is stimulus that the economy doesn’t need. The extra money raises the prospect that the economy could overheat, stoking inflation. |
| “We’re pouring a tremendous amount of fuel on the fire,” said Rick Rieder, who oversees roughly $1.7 trillion in assets as global chief investment officer for fixed income at asset manager BlackRock. | “We’re pouring a tremendous amount of fuel on the fire,” said Rick Rieder, who oversees roughly $1.7 trillion in assets as global chief investment officer for fixed income at asset manager BlackRock. |
| Global investors are also trying to navigate a changing economic backdrop. | |
| After years of sluggish growth, major economies in Europe and Japan now appear to have good momentum. On Monday, an index of eurozone purchasing manager activity, considered a good gauge of economic growth, hit a 12-year high, suggesting that the surprisingly strong European economy has further room to grow. | |
| Against that strength, investors are wondering whether those central banks will tamp down on their efforts to help growth, which could send interest rates higher. The European Central Bank has indicated it could pull back, depending on the economic conditions. | |
| The weakness on display in the United States set the tone for foreign markets. Japan’s Nikkei 225 dropped by 2.6 percent on Monday. Benchmark equity indexes in France, Italy and Spain all fell by more than 1 percent. |