Financial markets have that sinking feeling again
Stocks started to fall in early trading and extended their losses throughout the morning.
Corrections are seen as entirely normal occurrences, and the market, now in its second-longest bull run of all time, has not seen one in two years, an unusually long time.
World stock markets nosedived until Friday before recording minor gains, having seen almost $5 trillion wiped off from what just two weeks ago had been record highs. By early afternoon, the market was on pace for its worst weekly tumble since October 2008, at the height of the financial crisis. The Standard & Poor's 500 index, the benchmark for many index funds, also fell sharply after relinquishing early gains.
Markets followed USA stocks lower after the Dow, coming off a record high, entered a "correction" that is, a 10 percent decline from its latest peak for the first time in two years. Within the first 26 days of this year, the Dow had already surged 7.7 percent. The tumult started last Friday as investors anxious about signs of rising inflation. During the day, the Dow had fallen as much as 1,600 points. The Dow gained 330 points, or 1.4 percent, to 24,190.
Technology companies accounted for most of the broad gains, outweighing losses in energy stocks, which slumped as US crude prices declined, sending the price of oil below $60 a barrel for the first time this year.
Bond prices rose. The yield on the 10-year Treasury fell to 2.83 percent from 2.84 percent. The company also issued a disappointing forecast. Brent crude, used to price global oils, slid $2.02, or 3.1 percent, to close at $62.79 in London. The Nasdaq lost 274 points, or 3.9 percent, to 6,777.
Expedia slumped after its latest earnings fell short of analysts' expectations.
Investors also point to additional pressure from the violent unwinding of trades linked to bets on volatility staying low. Even after this week's losses, the S&P 500 index is up 12.5 percent over the past year.
The early rally in US stock indexes followed a broad slide in global markets. Britain's FTSE 100 fell 1.5 percent and the French CAC 40 lost 2 percent.
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The pan-European Stoxx Europe 600 index declined 1.6 percent.
Federal Reserve Bank of Dallas President Robert Kaplan said in an interview with Bloomberg Television on Thursday that more volatility in equity markets will have little impact on the broader economy, suggesting an important shift in the outlook for interest rates. Tokyo's Nikkei 225 was off 2.3 percent and Hong Kong's Hang Seng retreated 3.2 percent.
Investors anxious rising wages will hurt corporate profits and could signal an increase in inflation that could prompt the Federal Reserve to raise interest rates at a faster pace, putting a brake on the economy.
Financial analysts regard corrections as a normal event but say the latest unusually abrupt plunge might have been triggered by a combination of events that rattled investors. Those include worries about a potential rise in US inflation or interest rates and budget disputes in Washington.
In response, the widely followed CBOE SPX Volatility Index, also known as the VIX, soared as high as 50, hitting its highest level in three years. Many market watchers have been predicting a pullback, saying stock prices have become too expensive relative to company earnings.
The S&P 500 is down 9.3 percent from the record high it set January 26.
Scott Wren, senior global equity strategist for Wells Fargo Investment Institute, said investors are anxious that the higher wages could eat into corporate profits and that the Fed could "make a mistake" and raise rates too quickly. The unemployment rate is at 4.1 percent, a 17-year low, and is expected to further decline to 3.9 percent for the next two years. The housing industry is solid. And major economies around the world are growing in tandem for the first time since the Great Recession.
Stock trading turned volatile over the last several days, breaking an unusually long period of calm.
The S&P500, the most meaningful USA stock index, went through the entire year without falling by 3% or more in one session - something that had only happened once in its 94-year history. Many investors justified that by pointing out that interest rates were low and few alternatives looked like better investments. First, rising interest rates constrict economic growth, as higher borrowing costs on short-term debt restrict consumer and business spending.
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