Stocks Fall to End a Bad Week, and a Boom Begins to Look Shaky


Investors have spent much of the last year shrugging off geopolitical and economic risks, from the threat of nuclear conflict with North Korea to a potential trade war with China. Instead, they have focused on the strength of the United States economy, driven by banner corporate profits and President Trump’s push to lower taxes and reduce regulation.

The optimism helped lift stock markets ever higher, extending the boom into its ninth year.

Now, investors are suddenly skittish.

On Friday, stocks tumbled by more than 2 percent, propelling the market to its worst week in two years.

The immediate catalyst was the jobs report, which showed the strong United States economy might finally be translating into rising wages for American workers — a sign that higher inflation could be around the corner. But what is really worrying investors is that the fuel behind this stock market boom, namely cheap money from global central banks, may disappear sooner than they thought.

In recent weeks, the shift in sentiment has played out across the world’s largest financial markets. As stocks have sold off, Treasury yields have surged. The dollar has slumped.


“It’s a legitimate concern, when inflation spikes up a little bit, that people should evaluate how is this going to affect profits and how is this going to affect the Fed,” said Jonathan Golub, chief United States equity strategist at Credit Suisse. “The market is becoming more vigilant around these concerns, and that’s good and that’s healthy.”

In a strange way, investors are nervous that the global economy is doing too well.

Since stocks began climbing during the depths of the Great Recession in 2009, their rise has been supported by some of the lowest global interest rates seen since World War II. To jump-start growth, central bankers around the world slashed interest rates and took other steps to push down yields on safe government bonds.

Their goal was to incentivize investors to put their cash to work in the economy — for example, by buying corporate stocks and bonds — rather than stashing it in the relative safety of government bonds. The theory is that the fresh flood of capital would make it easier for companies to raise money, invest in their businesses and hire workers. Central banks wanted to heal their economies.

They have healed.

For the first time since the financial crisis of 2008, the world’s largest economies are growing in unison. The United States and China led the way, but the expansion now includes Europe, long mired in a debt crisis, and perennially laggard Japan.

Given the strength of the global economy, central banks, led by the United States Federal Reserve, have started to remove some of the supports that helped supercharge stock and bond prices over the last decade. The Fed started raising rates two years ago. And with the robust jobs report on Friday showing the fastest wage growth in years, some think the pace of rate increases could quicken.