(Reuters) – U.S. stock markets were set to open flat to lower on Friday, putting both the SP 500 and Dow Jones Industrial Average on course for their biggest weekly losses in at least six years.
Stocks plunged 4 percent on Thursday, overturning gains a day earlier and adding to the sense that rises in U.S. government bond yields have begun a major correction to nine years of almost uninterrupted gains for Wall Street.
Both the Dow Jones Industrial Average .DJI and the benchmark SP 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.
If the Dow ends the day lower, it is likely to make the week its worst since the height of the financial crisis in October 2008.
“The fact that Monday’s lows were breached signals more trouble ahead and rallies are likely to give way to rising bond yields,” said Peter Cardillo, chief market economist at First Standard Financial in New York.
By 8:06 a.m. ET (1306 GMT), Dow e-minis 1YMc1 were down 114 points, SP 500 e-minis ESc1 were down 6.25 points and Nasdaq 100 e-minis NQc1 were up 17.25 points.
At the heart of the pullback has been 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 2.825 percent, dipping after U.S. Congress approved a bill to end the federal shutdown, but still near a four-year high of 2.885 percent hit during Monday’s selloff.
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.
Investors also point to additional pressure from the violent unwinding of trades linked to bets on volatility staying low.
The market’s main gauge of volatility, the CBOE Volatility Index .VIX, was at a relatively elevated 32.25 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 SP’s correction is the fifth of this bull market, according to Yardeni Research. The last bear market was during the 2008 financial crisis.
“We’re cheap now, but it’s just a matter of much more cheaper we have to get to attract buyers,” said Robert Pavlik, chief investment strategist at SlateStone Wealth.
World stocks were also on track for their worst week since 2011, knocked by a 4 percent decline in Chinese stocks. [MKTS/GLOB]
With Wall Street’s quarterly earnings season more than half-way through, 78.3 percent of the SP 500 companies that have reported so afar have beaten profit expectations, above the 72 percent beat-rate in the past four quarters.
Chipmaker Nvidia (NVDA.O) was up about 9 percent in premarket trading after its upbeat results and forecast.
Expedia (EXPE.O) shares sank 16 percent after the online travel services company said costs would outpace revenue growth this year as it battles rivals for market share.
Reporting by Sruthi Shankar in Bengaluru; Editing by Savio D’Souza