LDN - Business

Wall Street on course for worst week in six years

[February 09, 2018] By Sruthi Shankar

(Reuters) - U.S. stock markets were set to open flat to lower on Friday, on course for their worst week in more than six years.

Stocks plunged another 4 percent on Thursday, overturning gains a day earlier and adding to the sense that a broader correction is firmly underway for Wall Street after nine years of almost uninterrupted gains.

Both the Dow Jones Industrial Average <.DJI> and the benchmark S&P 500 index <.SPX> are down more than 10 percent since hitting record highs on Jan. 26, and Thursday was the second time this week that the Dow fell more than 1,000 points.

By 6:40 a.m. EDT Dow e-minis <1YMc1> were down 32 points, or 0.13 percent, S&P 500 e-minis <ESc1> were up 3 points, or 0.12 percent, and Nasdaq 100 e-minis <NQc1> were up just 9.5 points, or 0.15 percent.

At the heart of the pullback is a rise in U.S. bond yields due to growing expectations that a robustly performing economy will lead to higher inflation and a steady rise in official interest rates over this year.

The danger for stock market investors is that means the Federal Reserve - and other major central banks - reining in the vast supplies of cheap funds they have pumped into the global economy since the 2008-09 financial crisis.

The yield on benchmark 10-year U.S. Treasuries <US10YT=RR>, which tends to be the driver of global borrowing costs, was hovering at 2.846 percent just short of a four-year high of 2.885 percent hit during Monday's selloff.

Investors also point to additional pressure from the violent unwinding of trades linked to bets on volatility staying low.

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Traders work near the end of the day on the floor of the New York Stock Exchange in New York, U.S., February 8, 2018. REUTERS/Brendan Mcdermid

The market's main gauge of volatility, the CBOE Volatility Index <.VIX>, opened at a relatively elevated 32.18 on Friday, nearly three times what it was a week ago but lower than a two-and-a-half-year high of 50.30 points hit on Tuesday.

The downturn in equities had been long awaited by investors, after a period of strong and fast gains. The S&P correction is the fifth of this bull market, according to Yardeni Research. The last bear market was during the 2008 financial crisis.

World stocks were also on track for their worst week since 2011, knocked by a 4 percent decline in Chinese stocks.

The U.S. House of Representatives early on Friday approved a bill to fund the federal government through March 23 and to increase overall spending limits over two years, sending the legislation to President Donald Trump.

With Wall Street's quarterly results season more than half-way through, 78.3 percent of the S&P 500 companies have topped profit expectations, above the 72 percent beat rate in the past four quarters.

Chipmaker Nvidia <NVDA.O> was up about 11 percent in premarket trading after its upbeat results and forecast.

Expedia <EXPE.O> shares sank 19 percent after the online travel services company missed analysts' quarterly profit estimate due to higher marketing expenses.

(Reporting by Sruthi Shankar in Bengaluru; Editing by Savio D'Souza)

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