The Dow suffered its worst drop in more than a year and a half Friday as United States stocks plunged on disappointing earnings from big companies and worries about higher interest rates. And investors anxious it could prompt the Federal Reserve to raise interest rates faster than expected. Equities are being tested by the surge in bond yields, with some fund managers saying three per cent USA 10-year rates would signal a bond bear market.
The Nasdaq fell 145 points to 7,240.95 and the S&P 500 skidded 60 points to 2,762.13.
"It's all about the bond market, the bond market is calling the tune for stocks and has been all week".
On Jan. 14, he quoted in two tweets a Fox Business Network contributor who said the "most explosive Stock Market rally that we've seen in modern times".
That is not to say the market is collapsing.
None of the indexes were close to 5 percent Friday, which is considered by some to be the start of a correction.
The Dow Jones industrial average fell 343 points, or 1.3 percent, to 25,841. The Dow's decline of 2.5 percent was mirrored in other major indices.
This week's market pullback has come even as US economic data continues to reflect strong growth.
"It definitely depends on rates, and the closer we get to [10-year yields at] 3 percent, the greater the likelihood you see a pullback which could be as deep as the 100-day moving average", said Julian Emanuel, chief USA equity and derivatives strategist at BTIG. Even with the pullback, the major indexes are still up more than 3 per cent this year.
Analysts said the Federal Reserve now looks increasingly likely to raise interest rates next month when its panel of rate-setters meets for the first time under new chairman Jerome Powell. Wall Street watchers are anxious that the Federal Reserve under new chairman Jay Powell may overreact and boost rates, bringing the market run to a hard halt and slowing the USA economy. "It is hard to argue against a March Fed rate hike now", said James Knightley, chief global economist at ING Bank.
Bond prices declined again Friday, pushing yields higher. Yields for 10-year Treasurys hit four-year highs Friday. European bond yields also rose after the U.S.jobs report came out. The yield is now the highest it's been since January 2014.
"It's a legitimate concern, when inflation spikes up a little bit, that people should evaluate how is this going to affect profits and how is this going to affect the Fed", said Jonathan Golub, chief USA equity strategist at Credit Suisse.
This week's sell-off comes as more money has been going into stock funds.
The catalyst for Friday's fall appeared to be a government report that showed the strong USA economy might finally be translating into rising wages for US workers.
Traders continued to sift through a raft of corporate earnings reports Friday. The Dow finished up 5.8 percent to start the year. Apple also reported lighter-than-expected iPhone sales for its previous quarter.
This January, revisions to S&P 500 2018 earnings estimates were 4.3 times more positive than negative, according to Bank of America Merrill Lynch. That's up from 54 percent a quarter earlier.
O'Hare said lacklustre earnings added to the selling momentum, with some of the biggest U.S. companies suffering dramatic declines after disappointing the market.
Google-parent Alphabet also reported quarterly results, with earnings per share missing expectations. Shares in Exxon shed $4.54 to $84.53. Chevron gave up $3.37 to $122.20. The stock was down $5.63 to $162.15. On the Nasdaq, 2,161 issues fell and 617 advanced. The online retail giant said it sold more voice-activated gadgets, enlisted new Prime members and benefited from its recent purchase of Whole Foods.
The pan-European FTSEurofirst 300 index of leading regional shares lost 0.98 per cent and the STOXX 600 index tumbled 1.07 per cent.
Oil futures declined. Benchmark U.S. crude slid 35 cents, or 0.5 percent, to settle at $65.45 a barrel on the New York Mercantile Exchange.