Wall Street on course for worst week in six years

Worried stock market trader

Some investors fear the market is over-stretched in the context of higher inflation and rising bond yields as central banks withdraw their easy money policies of recent years. The Nasdaq plummeted 275 points to close at 6,777.

The percentage decline on Thursday, 4.2%, wasn't almost as bad as the scary days of the 2008 financial crisis.

U.S. stocks experienced their worst fall in more than six-years on Monday in what became a Wall Street plunge as all but two stocks closing in the red. "We've all enjoyed it", said Rich Guerrini, CEO of PNC Investments.

The 10-year Treasury yield briefly hit a four-year high of 2.88%, renewing concerns about inflation and higher interest rates.

That means they are in what is known on Wall Street as a "correction", fueled by fears that a long stretch of low interest rates and tame inflation, which helped driven up stock prices, might be coming to an end. "We all know that", said White House spokesman Raj Shah.

Many are bracing for more wild swings ahead as the Chicago Board Options Exchange Volatility Index is holding at twice its level from a week ago.

The latest decline takes the Dow, which is now down 3.5% this year, back to where it was on November 28, 2017.

President Trump continuously speaks on the gains Wall Street has recorded during his first year in office.

Figures across the board look fairly bleak compared to what they were at the closing bell February 2-the kickstart of recent downturn.

FTSE 100 graph
GOOGLEFTSE 100 price The FTSE 100 in the UK took a battering today

An index of Latin American shares was also up about 1 percent. That only happened eight times all of past year, the fewest since 1964, according to LPL.

The Australian share market, and other markets in the Asia-Pacific region, have fallen sharply as investors are again caught up in the turmoil on USA markets. "It can take two to three weeks to work through the system".

"In the 'old days, when good news was reported, the Stock Market would go up". The higher the RVOL the more In Play the stock is.

"We had an epic run. A very crowded trade, it just took a while to unwind that", said John Lynch, Chief Investment Strategist at LPL Financial (Frankfurt: A1JZ6S - news) in Charlotte, North Carolina.

Equities for years have looked relatively attractive compared to the low yields offered by bonds, but the rise in Treasury yields has diminished the allure of stocks, especially with stock valuations at historically expensive levels. Fast rising interest rates would make that argument much less persuasive. "Obviously people are reacting".

Still not convinced? After the crashes in 1987 and 2000, the Federal Reserve began to cut interest rates, which gave further gains to bonds. Inflation can also send bond yields higher, which makes it more expensive for individuals, companies and even the US government to borrow money.

New York Federal Reserve President Bill Dudley told Bloomberg News on Thursday that if the US economy keeps getting stronger the central bank may be justified in raising rates four times this year. Because pullbacks and corrections are actually extremely common on Wall Street.

"In the absence of a recession, a deep bear market is unlikely", he said. Investors are scared the economy may be accelerating too quickly, as wage growth is hinting at inflationary pressures, which are driving up interest rates, which in turn are spooking investors.


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