The rout in U.S. equities endured with the markets suffering solid losses for the day, as the recent run in bond yields and rising inflation uneasiness continues to give the global markets jitters. Treasury yields fell and the U.S. dollar continued to rebound, while service sector activity hit its highest level in more than twelve years. Earnings remained in focus, with mixed reactions, and Broadcom upped its offer to acquire Qualcomm to about $121 billion. Crude oil prices were lower and gold was higher.

The Dow Jones Industrial Average (DJIA) plummeted 1,175 points (4.6%) to 24,346, the S&P 500 Index tumbled 113 points (4.1%) to 2,649, and the NASDAQ Composite plunged 273 points (3.8%) to 6,968. In heavy volume, 1.3 billion shares were traded on the NYSE and 3.6 billion shares changed hands on the NASDAQ. WTI crude oil fell $1.30 to $64.15 per barrel and wholesale gasoline lost $0.02 to $1.85 per gallon. Elsewhere, the Bloomberg gold spot price moved $4.74 higher to $1,338.13 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—gained 0.3% to 89.47.

The January Institute for Supply Management (ISM) non-Manufacturing Index improved more than expected to 59.9—the highest since August 2005—from December’s upwardly revised 56.0 reading, versus the Bloomberg forecast calling for a rise to 56.7. A reading above 50 denotes expansion. New orders jumped 8.2 points to 62.7, business activity increased 2.0 points to 59.8, and employment growth accelerated 5.3 points to 61.6. Prices nudged further into elevated expansion territory. Non-manufacturing activity accounts for a large majority of U.S. economic output and the ISM said respondents’ comments were positive about business conditions and the economy, while also noting that recent tax changes had a positive impact on businesses.

Treasuries were sharply higher, as the yield on the 2-year note decreased 7 basis points (bps) to 2.08%, the yield on the 10-year note fell 10 bps to 2.74%, and the 30-year bond rate lost 7 basis points to 3.02%.

Treasury yields remain at multi-year highs and the U.S. Dollar Index has rebounded slightly from a recent tumble to multi-year lows, while the stock markets extended last week’s pullback.

Schwab Center for Financial Research – Market Analysis Group

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