It’s been a good run for the US stock market, but it couldn’t go on forever. On Feb. 2, stocks fell by more than 2%, dragging the market to its worst week in two years. The VIX, which measures volatility in the market, climbed. The Dow had its worst day since Brexit. Even tech darlings Google and Facebook saw their market capitalizations slashed by billions.
Just one week earlier, the S&P 500 closed at an all-time high. The market’s recent poor performance was sparked by the latest US jobs report, which showed wages were finally growing for American workers, and suggested higher inflation could soon follow. That could in turn make the cheap capital that has fueled the stocks boom harder to come by. In short, people are worried about interest rates.
Energy stocks led the selloff, with Chevron losing 5.6% and Hess Corporation down 5.5%. Technology stocks also performed poorly. Google parent Alphabet tumbled 5.3% a day after it missed expectations for fourth-quarter earnings, posting a loss of $3.02 billion due to changes to the US tax system; eBay fell 4.1% and even Facebook slipped 1.5%.
The stock market is widely believed to be overvalued, with the cyclically adjusted price-to-earnings ratio for the S&P 500 at its highest since the dot-com bubble. Many people think it’s due for a correction. The good news is that while Americans are saving less, their finances are in much better shape than they were in 2007, before the last recession.
