Last Updated Feb 2, 2018 4:27 PM EST
U.S. stocks plunged on Friday after companies including Alphabet and ExxonMobil issued disappointing profit reports. Stocks ended the week with their worst performance in two years.
Energy and technology companies led stocks broadly lower. The Dow Jones Industrial Average plunged 666 points on Friday, dipping more than 2.5 percent to 25,520.96. Other indices also fell, with the S&P 500 slipping 2.2 percent and the Nasdaq slipping almost 2 percent.
Technology shares dipped after Google’s parent company Alphabet (GOOG) reported results that missed analysts’ forecasts. Its results came up short of expectations, thanks to a $10 billion tax hit from the new law. Meanwhile, ExxonMobil (XOM) and Chevron (CVX) also reported disappointing results, pushing their shares lower. Investors are also concerned about rising inflation, which could prompt more interest rate increases from the Federal Reserve.
Economists and analysts have cautioned about the heightened risk of a market correction following months of steadily climbing equity valuations. Based on long-term measures, the U.S. stock market is trading at levels that were last witnessed during the late 1990s, when lofty valuations on dot-com stocks pushed the market higher, according to Oxford Economics.
“The surge in equity prices and valuations since last August, from already high levels – which we dubbed a ‘melt up’ earlier this month – would appear to increase yet further the risk of a significant correction,” Oxford Economics lead economist Adam Slater wrote in a research note earlier this month.
The Dow is on track for what would be the fourth-largest decline in its history. On Oct. 13, 2008, in the early days of the financial crisis, the blue-chip index plummeted 11 percent, or 936 points. Since 1946, there have been 46 corrections of more than 10 percent in U.S. equities, or about one every 18 months, Slater noted.
“The current run of equity gains since the last such correction (at the turn of 2016) is 23 months,” he wrote.
Amazon (AMZN), which beat analyst estimates for earnings and reported a quarterly profit that topped $1 billion for the first time, bucked the trend, adding nearly 2.9 percent.
Exxon Mobil sank 5.2 percent and Chevron lost 5.6 percent. Both also reported results that fell short of forecasts.
Bond prices fell after the government reported more job gains last month. The yield on the 10-year Treasury note rose to 2.84 percent.
Businesses hired robustly in January, adding a better-than-expected 200,000 jobs. The unemployment rate remained steady at 4.1 percent, the lowest level since 2000.
Significantly, wages rose at the fastest rate in eight years. Average hourly earnings, which had been rising at a modest 2.5 percent in the recovery, increased by 2.9 percent from the year before. The strong report makes it more likely that the Federal Reserve could raise interest rates faster this year, analysts said.
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