The stock market is trying to avoid its worst week since the 2008 financial crisis.
The Dow jumped more than 300 points at Friday’s open, a modest bounce after an ugly week. The S&P 500 and Nasdaq gained more than 1% apiece.
Fears about inflation and soaring bond yields sent the Dow plunging 6.5% through the first four trading days of this week. That would have been the steepest decline in any week since October 2008. All three major indexes are down on the year.
The selling on Wall Street spread to Asia overnight as stocks dropped in China and Japan. European stocks also retreated on Friday.
After losing a record 1,175 points on Monday, the Dow tumbled 1,033 points more on Thursday. It landed in a correction, a 10% decline from previous highs.
The market turmoil follows a prolonged period of booming stock prices with virtually no sharp declines. Such a rapid rise is unusual, and market analysts long warned that a pullback was overdue.
“The run-up on the market was amazing. We’ve all enjoyed it,” said Rich Guerrini, CEO of PNC Investments.
The S&P 500’s market value surged $6 trillion between President Trump’s election and the all-time high on January 26. The rout has erased $2.5 trillion in value from the S&P 500 and $5.2 trillion from global stocks, according to S&P Dow Jones Indexes.
The jitters have been driven by the rapid rise in 10-year Treasury yields. Selling in the bond market led Wall Street to worry that inflation will force the Federal Reserve to speed up its rate hike plans.
The 10-year Treasury yield, which touched a four-year high of 2.88% on Thursday, dipped back to 2.82% on Friday morning.
Wall Street’s rate shock is “a bit alarming” because it’s “another reminder of our addiction to cheap money,” Kit Juckes, global fixed income strategist at Societe Generale, wrote in a report on Friday.
Nicholas Colas, co-founder of DataTrek Research, doesn’t think the sell-off will end until bond yields fall sharply.
“Too late to sell, too early to buy … That feels like where we are,” Colas wrote in a report. “Stocks won’t bottom until long term Treasuries rally hard.”
The ferocity of the selling has caught investors off guard.
While the market turbulence can be alarming, analysts urged investors to stay calm because the economic backdrop is strong. The unemployment rate is 4.1%, a 17-year low, and economic growth is expected to gain steam in 2018.
“The last thing anybody should do is overreact to traditional volatility,” Guerrini said.
Despite the heavy losses this week, the Dow remains up 36% since President Trump’s election.
