Dow drops 550 points as bond fears haunt stocks

Source CNN

The extremely volatile Dow Jones industrial average closed up 567.02 points or 2.33 percent on Tuesday to 24,912.77.

Volatility returned to markets on Thursday as United States indices finished the day sharply lower, plunging them into correction territory. The rebound followed a 1,175-point drop on Monday and a 666-point drop on Friday, amid investor fears that the Federal Reserve could double interest rates this year.

Societe Generale said in a report Wednesday that it sees a clear chain of causality in the recent stock market sell-off: global risk sentiment is driven by US equities, USA equities are driven by USA bond yields and a significant degree by core eurozone yields.

The dollar index.DXY rose 0.76 percent, with the euro EUR= down 0.82 percent to $1.2275.

"The bond market has definitely got the stock market's attention", said Ryan Detrick, senior market strategist at LPL Financial.

The Russell 2000 index of smaller-company stocks sank 3.6 percent to 1,491.09.

Boeing rose 2.7 percent, providing the biggest boost to the Dow and S&P. The rate on the 10-year Treasury bond was about 6.66 percent versus a dividend yield on stocks of only 1.17 percent.

The number of Americans filing for unemployment benefits unexpectedly fell last week, dropping to its lowest in almost 45 years as the labor market tightened further, bolstering expectations of faster wage growth this year.

The slump began on Friday as investors anxious that creeping signs of higher inflation and interest rates could derail the USA economy along with the market's record-setting rally.

The gap between the Dow's highest and lowest levels on Wednesday was about 500 points, or 2%. S&P 500 futures also dropped 1.1 per cent, to 2,665.70.

Markets Right Now: Asian markets recouping losses early
But in an example of the bumpy ride Wall Street is on Tuesday, the index quickly gave up some gains was up 341 points at 24,687. Advancing issues outnumbered declining ones on the NYSE by a 1.71-to-1 ratio; on Nasdaq , a 1.33-to-1 ratio favoured advancers.

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Among the biggest fallers Tuesday was Tokyo's Nikkei 225 stock average, which ended 4.7 percent lower at 21,610.24, having earlier been down a massive 7 percent.

The Standard & Poor's 500 index lost 13.48 points, or 0.5%, to 2,681.66.

The retreat in equities had been long awaited by investors as the market climbed steadily to record high after record high with few bumps.

After Tuesday's rebound the S&P 500 is still down 6.2 percent from the record high it set on January 26.

The Nasdaq Composite too added 148.36 points, closing at 7,115.88. Benchmark 10-year notes last fell 9/32 in price to yield 2.7999 percent. And bond yields haven't been this high in years.

"The positive for the market is that we came back today in very convincing fashion, but I certainly would not say it's all done, the Wicked Witch is dead", said JJ Kinahan, chief investment strategist for TD Ameritrade. It has been an uncommonly long time since the last market correction, which ended nearly two years ago.

Stocks in Europe declined and bond yields increased after the Bank of England said could raise interest rates in coming months because of the strong global economy.

The last 10 percent drop for markets came in early 2016, when oil prices were plunging as investors anxious about a drop in global growth, which could have sharply reduced demand.

Markets are also on edge over US lawmakers' wrangling to extend the so-called debt ceiling - funding for the USA government runs out on February 8 unless a stopgap bill manages to pass the Senate later on Wednesday.

US crude oil fell 76 cents, or 1.2 percent, to close at $63.39 a barrel in NY. It fell 76 cents, or 1.2 percent, to close at $63.39 a barrel in New York Tuesday. Brent crude, the benchmark for global oil prices, rose 54 cents to $67.40 a barrel in London.

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