US stocks dive on rate hike worries

Dollar bills

The S&P 500 and Dow averages capped their biggest weekly declines since 2016, with the Dow sinking 665 points today, spooked by the accelerating rise in bond yields. The S&P 500 dropped almost 60 points, or 2.1 percent, and the Nasdaq Composite slid almost 145 points, or 2 percent.

"The dollar clearly needed support this week, and January's impressive USA jobs data has come to the rescue", said research analyst Lukman Otunuga at FXTM online currency brokerage. The 3 percent yield is looked at as a key threshold that can drive investors out of equities and into bonds.

While interest rates are still low by historical standards, meaning borrowing is still relatively cheap for businesses and people, they've been rising more swiftly, and that's what has markets on edge.

With the huge drop on Friday, the three major Wall Street indexes ended with their biggest losses for one week in almost two years, after closing the previous week at record highs.

The S&P 500 has lost 3.8 percent since hitting a record high a week ago.

Friday's plunge knocked the Dow to 25,520.96, a more than 2.5 percent loss from the previous session.

The immediate catalyst for Friday's sharp decline was the jobs report, which showed the strong US economy might finally be translating into rising wages for USA workers - a sign that higher inflation could be around the corner.

All 30 of the Dow's component stocks fell, with energy, technology and financial shares posting some of the heaviest declines.

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S&P 500 e-mini stock futures EScv1 extended losses after 4 p.m. ET close in the cash market.

The smaller Shenzhen index, which closed unchanged on Friday, closed down almost 7 percent last week.

More recently, the market had been surging in the so-called 'Trump rally'.

The question now is whether this market turmoil will persist into next week, or whether investors have been waiting on the sidelines come in to buy after the dip. On Wednesday the United States central bank said inflation was likely the rise over the course of the year. Meanwhile wages rose at the fastest pace in more than eight years, suggesting employers are competing more fiercely for workers. "The easy money had been made, and it will be more challenging to extend the gains as interest rates move higher".

A big selloff in the USA government bond market Friday sent the yield on the 10-year Treasury up above 2.85%, its highest level since January 2014. The 10-year Treasury yield popped above 2.85 percent for the first time since January 2014.

Given the strength of the global economy, central banks, led by the U.S. Federal Reserve, have started to remove some of the supports that helped supercharge stock and bond prices over the last decade.

On the economic front, total nonfarm payroll employment increased by 200,000 in January, and the unemployment rate stayed unchanged at 4.1 percent, stronger than market expectations, the U.S. Bureau of Labor Statistics said Friday. Beyond low unemployment, average hourly wages grew 2.9 percent in the first month of the year compared to January 2017.

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