In one of the most brutal and volatile days reminiscent of the 2010 flash crash, the Dow Jones Industrial Average shed nearly 1,600 points during trading on Monday, Feb. 5, 2018. The Dow recovered slightly to close down 1,175 points — the worst ever one-day point drop. Although it closed at 24,345, the Dow slumped below 24,000 in late afternoon trading Monday, meaning it registered a nearly 10% market correction from its all-time peak just two weeks earlier.
Interestingly, there was no single fundamental change to trigger the large drop. There was also no apparent glitch in the market’s computers. But selling was lighting fast. High frequency trading and buildup in volatility trading played a role in the drop, especially in the late afternoon when the Dow dropped 6% in just a few minutes. Of course, without buyers moving in, there was no stopping the nosedive even at the key support levels.
This market selling began days ago due to fears of higher inflation, stronger wages, and a rapid rise in long-term interest rates, with the 10-year Treasury yield rising from 2.40% to 2.85% in a single day. There was fear that wage inflation would trigger rapid rate hikes by the Federal Reserve. Following last year’s three rate hikes, many now expect another three hikes in 2018.
Monday’s market drop coincided with the swearing in of new Federal Reserve Chairman Jerome Powell. Exiting Fed Chairwoman Janet Yellen did suggest stock prices were high.
Monday’s big stock market drop wiped out all the year’s gains. The Dow is also down 9.3% from Jan. 26 2018, when the index hit its all-time record high of over 26,600. Monday’s trading action may continue. The sell-off still represents only a 10% correction after the market’s gains in January, and the adjustments are still very modest measured against the growth in 2017 and over the past nine years.
24/7 Wall St. tracks many fundamental factors in the economy and corporate America, as well as the larger economic picture globally. U.S. corporate earnings are still growing rapidly and will likely get a boost from the recent tax reform. Companies will now keep 79 cents of every dollar they earn after taxes, up from 65 cents on the dollar before. Additionally, both global and U.S. gross domestic products are expected to keep rising, which would further prompt the Fed to raise rates.
Some investors with longer views, beyond a few days, will likely invest in defensive companies — those they believe will keep operating well if the market continues to fall and rates continue to rise. Many such public companies also have a long history of paying dividends. Warren Buffett’s advice to investors has famously been, “Be fearful when others are greedy and greedy when others are fearful.”
24/7 Wall St. has chosen a list of companies that should operate fine in times of market turmoil and even if economic turmoil were to arise. The list includes each company’s share price as of Monday, a 52-week trading range, and the current dividend yield.
While there are no assurances these defensive stocks will not drop in price, these are traditionally companies that investors seek as safe havens in times of market turmoil and when they would rather not put their money into low-yield fixed income investments.