United States markets continued to be volatile Thursday morning as the Dow Jones Industrial Average slumped about 205 points in the opening hour of trading to 24,687.
As on other days this week, the losses followed some initial gains, raising the market's main gauge of volatility, the CBOE Volatility Index.VIX to 36.13 points, three times what it was a week ago. He said the declines are part of a normal adjustment in stock prices to reflect growing inflation concerns after a long stretch in which the indexes set record high after record high. Meanwhile, the Nasdaq Composite Index finished the brutal session down 274 points, or 3.9%, at 6,777. "As T-bond yields increase in value, the lure becomes greater for investors to move out of volatile stocks and into bonds for a safer, near-guaranteed return".
The 10-year U.S. Treasury note yield rose as high as 2.884 percent, nearing Monday's four-year peak of 2.885 percent, after the Bank of England said interest rates probably need to rise sooner than previously expected. Yields have since retreated, however, to 2.82 percent. In the past 21 episodes since 1945 when the 30-year USA bond yield has suffered "significant" spikes, stock prices have only declined in three of those periods. The surge in volatility on Monday, which sent the VIX spiking to multi-year highs in just hours, led to the implosion of products created to bet against volatility, exacerbating markets stresses in a rapid unwind.
The chief cause of the pullback is a rise in US bond yields because of growing expectations that a strong economy will result in higher inflation and an increase in interest rates this year.
USA market indexes were lower Wednesday.
The Dow suffered its worst daily point drop on record Monday, and briefly fell almost 1,600 points intraday. In the UK.as at 12.30 on (9 February) the FTSE 100 was down 0.85 per cent, trading close to 7,100 points.
The Australian market on Thursday turned around a weak start to the day as bargain hunters bought stocks beaten up in Monday and Tuesday's plunge.
Even the most bullish of market strategists will say a correction is ultimately healthy for a market because it removes some of the froth and speculation.
Q&A What are Dow's biggest percentage falls? Those include worries about a potential rise in US inflation or interest rates and budget disputes in Washington. Brent crude, the worldwide standard for oil prices, gave up 70 cents, or 1.1 percent, to $64.81 per barrel in London.
Yelp fell 7.3 percent after a host of brokerages cut their price targets on the consumer review website operator's stock following quarterly results. The Nasdaq was down 125 points, or 1.8 percent, to 6,651.
"One thing is that going into the last week or so, investor bullishness was in the top decile of its historical range, which suggests that investors were pretty optimistic, with high expectations and largely complacent", said Jack Ablin, chief investment officer with Cresset Wealth Advisors in Chicago.