Dow Jones Suffers Worst Day in Two Months: What’s Behind the Crash?

Dow Jones Plunges as Investors Fear Rising Rates and Inflation

The Dow Jones Industrial Average (DJI) fell sharply on Monday, as investors worried about the prospects of higher interest rates and inflation amid the economic recovery from the pandemic. The blue-chip index dropped 614 points, or 1.8%, to close at 33,970, its worst day since July.

The sell-off was triggered by a series of events that raised concerns about the monetary policy outlook and the inflationary pressures in the US economy. The main catalysts were:

• The Federal Reserve’s announcement that it will start tapering its bond-buying program by November, signaling that it is preparing to tighten its monetary policy in response to the strong economic growth and rising inflation.
• The release of the consumer price index (CPI) data for August, which showed that inflation remained elevated at 5.3% year-over-year, well above the Fed’s 2% target.
• The surge in energy prices, as oil hit a seven-year high of $80 per barrel and natural gas reached a record high of $6 per million British thermal units, due to supply disruptions and strong demand.
• The debt ceiling impasse, as Congress failed to reach an agreement on raising the federal borrowing limit, raising the risk of a default or a government shutdown in October.

These factors spooked investors, who dumped stocks and sought safety in bonds and cash. The market sentiment was also dampened by the resurgence of Covid-19 cases and the slowdown in the vaccination rate, which threatened to derail the economic recovery.

The Dow Jones was dragged down by the losses in all 30 of its components, with the worst performers being Chevron (CVX), Boeing (BA), Caterpillar (CAT), and Goldman Sachs (GS). These stocks were hit hard by the rising energy costs, the lower demand for travel and industrial goods, and the lower trading activity.

The Dow Jones was also underperforming its peers, as the S&P 500 index (SPX) and the Nasdaq Composite index (IXIC) fell by 1.7% and 2.2%, respectively. The S&P 500 was weighed down by the weakness in the energy, financial, and industrial sectors, while the Nasdaq was hurt by the sell-off in the technology and consumer discretionary sectors.

The Dow Jones is expected to face more volatility and uncertainty in the coming weeks, as investors await more clues from the Fed on its policy stance and monitor the developments on the inflation, energy, and debt ceiling fronts. The index is currently down 4.5% from its all-time high of 35,631 reached on August 16.