Stocks In Freefall; Wall Street Bets on Interest Rates Rising
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Stocks In Freefall; Wall Street Bets on Interest Rates Rising

Congress Reaches Deal on the Budget

The Trump correction. The stock market rally that began shortly after Trump’s election has fizzled. Major stock indexes dropped sharply late Thursday, falling into a market correction, as volatility returned after a brief respite. The Standard & Poor’s 500-stock index fell more than 3% and the Dow Jones Industrial Average dropped 3.5%, in a broad-based selloff.

The Dow has fallen more than 10% from its all-time high, set on Jan. 26.

A correction is a fall of 10% from the market’s recent peak. A decline of 20% would mark the start of a bear market in stocks.

At the same time, the market prices paid for U.S. government bonds fell as investors braced for an increase in the supply of Treasury debt at a time when signs of accelerating growth and concerns about inflation have driven the interest rates on government debt—and the cost of government borrowing—to multiyear highs. Virtually all interest rates—from credit cards to mortgages—can be expected to rise as the government’s rates rise.

Bond yields rise as prices fall. The benchmark 10-year Treasury note yield rose to 2.868%, from 2.843% on Wednesday.

Shutdown redux. Trump on Friday morning signed into law a far-reaching budget deal that will boost spending by hundreds of billions of dollars and allow the federal government to reopen after a brief shutdown. The partial shutdown began just after midnight, Eastern time, when the government, operating on the latest in a series of short-term spending bills, ran out of money because Congress missed its deadline to pass a new one.

Trump’s signature came quickly after the House gave final approval early Friday to the deal, hours after a one-man blockade by Sen. Rand Paul (R-Ky.) delayed the votes and forced the government to briefly close.

House Democrats, after threatening to bring the bill down because it did nothing to protect young undocumented immigrants, gave Speaker Paul D. Ryan (R-Wis.) the votes he did not have in his own party and ensured passage. In the end, 73 House Democrats voted yes to more than offset the 67 Republicans who voted no.

Just before the vote, Ryan voiced support for bringing a debate on immigration to the House floor—though he did not make a concrete promise, as Democratic leaders had wanted.

Farm bust. U.S. farmers are gearing up for another tough year. Farm incomes are expected to hit their lowest point since 2006 and borrowing costs are rising, federal data shows, as a deepening slump in the agricultural economy enters its fifth year. A string of bumper corn and soybean harvests has added to a glut of grain worldwide, eroding prices for U.S. farmers. Foreign rivals like Russia and Brazil are also chipping away at U.S. dominance in the global grain trade, helping to fuel a multiyear downturn that is pushing some farmers out of business. “The state of the rural economy is fragile,” Agriculture Secretary Sonny Perdue told lawmakers during a hearing of the House Agriculture Committee this week. “There’s a lot of stress and a lot of duress on the farms today.” The U.S. Department of Agriculture on Wednesday forecast that farm incomes would fall 7% to $60 billion in 2018 on lower crop and livestock revenue, less than half of the record $124 billion farmers earned in 2013.

 

February 9, 2018