The stock market tumbled today with both the Dow Jones and S&P indexes dropping almost 1.5%. Underlying these drops were strong job numbers that led to the decline. The economy added jobs at a rate in excess of predicted rates with the unemployment rate being reduced to 5.5% which is close to being considered full employment.
The market dropped in reaction to this news as the sights of many investors are now put on what the Federal Reserve’s reaction will be to this news. Brad Reifler has read that Many investors believe that the Fed will raise interest rates sooner than previously believed as a result of this news which will put downward pressure on stocks as investors will have alternatives such as bonds to invest in.
Janet Yellen, the Federal Reserve Chairman, previously indicated that interest rate increases were likely to hit towards the end of 2015 but would be done slowly and in a measured manner to reduce the impact that these increases would have on investors and other participants in the economy.
The industries that are most susceptible to interest rate increases were hit the hardest. Utilities and real estate investment trusts (REITs) are thought to be the most impacted by rate increases as their bond like yields become less attractive for investors who are searching for yield once interest rates rise.