Dow drops 400 points ahead of Trump’s first State of the Union

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The Dow Jones Industrial Average fell more than 400 points Tuesday, the largest drop in the key stock index since June 2016.

The Dow dropped to 26,028 on Tuesday afternoon, roughly 400 points below Monday’s close, before ticking back upward by 1:40 p.m. It’s the second straight day of losses for the Dow, and largest single-day drop under President Trump.

The value of medium- and long-term U.S. Treasury bonds, hedges impending economic distress, increased Tuesday. 

Stocks have skyrocketed over the course of Trump’s first year in office upon booming consumer confidence and the promise of a major corporate tax cut. Trump and his aides have taken credit for the massive rise, calling it a referendum on and reflection of their economic agenda.

Even with the drop, the Dow is up more than 8,000 points since Trump was elected in 2016. The Dow closed at a record high more frequently in 2017 than in any other year in its history, breaking the mark of 69 record highs set in 1995. 

But the booming equities market has triggered concern among policymakers that investors could be overvaluing stocks, setting up a nasty correction. Wall Street veterans say traders see an approaching end to the Trump stock boom, partially due to rising interest rates around the world.

As economies around the world continue recovering from the economic crisis, central banks are slowly drawing back the stimulus they used to ignite the process.

The Federal Reserve is expected to hike rates at least twice this year after three rate hikes in 2017. Bringing rates back toward the historic neutral position gives the Fed more room to respond to the next crisis and would likely put a damper on some equities investment.

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