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Sharp falls in US share prices

February 2018

Having risen by over 25% over 2017, the Dow Jones Industrial Average Index fell during February to levels last seen at the end of November. Investors were troubled by evidence that interest rates could rise sooner and more forcefully than previously expected. The Dow and the S&P 500 Index both entered “correction” territory during February, falling by more than 10% from their highs, but subsequently rallied later in the month. 

  • The S&P 500 Index experienced its worst month since January 2016
  • An interest rate increase is widely expected as early as March
  • Headline CPI came in at 2.1% for January, compared with the Fed’s 2% target

To view the series of market updates through February, click here


Having risen by over 25% over 2017, the Dow Jones Industrial Average Index fell during February to levels last seen at the end of November. Investors were troubled by evidence that interest rates could rise sooner and more forcefully than previously expected. The Dow and the S&P 500 Index both entered “correction” territory during February, falling by more than 10% from their highs, but subsequently rallied later in the month. 

“The Dow and the S&P 500 Index both entered “correction” territory during February”

Over February as a whole, the Dow Jones Industrial Average Index fell by 4.3% while the S&P 500 Index dropped by 3.9%, experiencing its worst single month since January 2016. Every industry sector in the S&P 500 Index declined over February as a whole. Energy was the worst-performing sector, followed by consumer staples and telecommunications. In comparison, financials, consumer discretionary, and information technology were the best-performing sectors. The technology-rich Nasdaq Index declined by 1.9% over the month.

After a three-day shutdown of the US federal government in January, a further brief shutdown in February ended when President Trump signed a budget bill agreed by Congress, albeit one that would have to be readdressed in March. The bill included an increase in federal spending limits and this, combined with the impact of earlier tax cuts, has helped to stoke speculation that inflationary pressures might begin to build.

The core consumer price index (which strips out food and energy prices) rose at an annualised rate of 1.8% during January. Headline consumer prices rose by 2.1% year on year, which is above the Fed’s target rate of 2%. Meanwhile, the US labour market posted stronger-than-expected data for January. 

The minutes from the Federal Open Market Committee’s (FOMC’s) January meeting indicated that policymakers believe growth in the US economy will continue to gain traction. This view was underlined by testimony from the new Chair of the Federal Reserve, Jerome Powell, who expects growth to gain pace, which should in turn stoke inflation. An increase in interest rates at the FOMC’s March meeting is widely anticipated by investors. 

Historically, February is the best month of the year for dividends in the US, according to S&P Dow Jones Indices, as companies complete their fiscal year and get ready for shareholder meetings. In the first two months of 2018, the average dividend increase was 14.11%, compared with 11.36% in the same period of 2017. 

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