Another day of wild swings in the financial markets saw a loss for the day of over 4%

This article is more than 2 years old

This article is more than 2 years old

Wall Street was on Thursday heading for its toughest week in more than two years after fears of higher interest rates led to a fresh plunge in New York stocks.

Another day of wild swings in the financial markets saw more than 1,000 points wiped off the Dow Jones industrial average – a loss for the day of over 4%. It was the third drop of more than 500 points for the Dow in the last five days and the Dow is now down 10% from its peak on 26 January, a fall known as a “correction”.

The more broadly based measure of US share prices – the S&P 500 – and the tech-heavy Nasdaq index were also sharply lower as traders reacted nervously to concerns about rising inflation in the world’s biggest economy.

Q&A What are the Dow’s biggest points falls? Show Hide 1,175.21, 5 February 2018

Growing fears of interest rate rises send investors to the exits after markets had recently hit record highs. 1,032.89, 8 February 2018

Shares fall again as fears grow that rising growth and inflation will force central banks to raise rates more sharply. 777.68, 29 September 2008 The US Congress votes against a bank bailout bill put forward by the Treasury and Federal Reserve. 733.08, 15 October 2008 Concerns continue despite global bank bailout plans unveiled. 684.81, 17 September 2001 Wall Street reopens after 9/11 terrorist attack. 679.95, 1 December 2008 US economy in recession with concerns about how long it will take to recover. 678.92, 9 October 2008 Markets fall at the height of the global financial crisis after the collapse of Lehman Brothers and the subprime mortgage chaos hit other financial institutions. 665.75, 2 February 2018 Strong earnings figures provide more evidence that Federal Reserve could raise US interest rates more times than expected. 634.76, 8 August 2011 Markets plunge as investors react to US losing its coveted AAA credit rating from Standard & Poor’s. 617.78, 14 April 2000 Technology stocks are sold off amid fears of growing inflation. 610.32, 24 June 2016 Wall Street reacts to the UK voting to leave the EU. Photograph: Richard Drew/AP

White House spokesman Raj Shah dismissed the fall saying President Donald Trump was more concerned about long-term trends and the economic fundamentals remained “very strong”. Earlier this week Trump tweeted that it was a “big mistake” for markets to fall given the strong growth and jobs numbers.

The trigger for the latest sell-off was a jump in the yield on 10-year US Treasury bonds – seen as a key indicator of inflationary pressure and the likelihood of higher interest rates.

Sign up to the daily Business Today email or follow Guardian Business on Twitter at @BusinessDesk

Ten-year bond yields climbed to almost 2.9%, with markets speculating about whether they would hit 3% over the coming days.



Rising bond yields – coupled with a strong signal from the Bank of England that an interest rate increase was on the way – added to expectations that the world’s major central banks were now firmly on course to wind down the emergency stimulus they have pumped through the financial system since 2009, driving an almost decade-long stock market rally.



Stock market sell-off: five factors that explain the global plunge Read more

“Things haven’t quietened down. Things are all over the place. The market is trying to find a bottom to this madness,” said Jason Ware, chief investment officer at Albion Financial Group.

“Now we are having acute attention on what happens in the bond markets, so when yields move up there is an unsettling feeling in the equity market.”



The market’s main gauge of volatility, the Vix index, fell to 29.82 on Thursday, more than twice what it was a week ago but down off a two-and-a-half-year high above 50 points hit on Tuesday.



Wall Street has already factored in an increase in borrowing costs when the Federal Reserve – America’s central bank – next meets in March.

But evidence of rising wages contained in the latest report on the state of the US labour market, which was released last Friday, has convinced the financial markets that interest rates will go up faster and to a higher level than they had previously been expecting.

Q&A What are Dow's biggest percentage falls? Show Hide 22.61% – 19 October 1987 Global markets fall amid growing tensions in the ​​Middle ​East between Iran and the US, with warships attacked. 12.82% – 28 October 1929 Wall Street Crash of 1929 which began the previous Thursday continues on Black Monday as the economy ​​starts to worsen. 11.99% – 18 December 1899 The suspension of shares in Produce Exchange Trust Company prompted fears of a market bubble in industrial stocks. 11.73% – 29 October 1929 The Wall Street Crash continues on Black Tuesday. 9.92% – 6 November 1929 Shares continue to fall before bottoming out on 13 November. 8.4% – 12 August 1932 Markets weaken as the Great Depression worsens. 8.29% – 14 March 1907 A run on banks amid a recession led to a financial crisis, which was only ended after banker JP Morgan pledged his own money to shore up the system. 8.04% – 26 October 1987 Continuing fallout from the Black Monday turmoil. 7.87% – 15 October 2008 As the global financial crisis continues, concerns grow despite global bank bailout plans unveiled. 7.84% – 21 July 1933 Markets continue to fall during the Great Depression. Photograph: Justin Lane/EPA

The Bank of England governor, Mark Carney, said it was “certainly healthier when markets have two-way risk around prices” after an extended period of calm over the course of the past year. “One hesitates to say welcome but it’s not an entirely surprising development,” he said.

However, the governor said the banking system was better equipped to deal with sharp moves in the financial markets. “We feel quite strongly that the core of the system is in an entirely different place,” he added.

“There is not the amplification from the core of the system by volatility, if anything it will dampen it.”



Wall Street began the week with a fall of almost 1,200 points in the Dow, which was half recouped by a big jump in share prices on Tuesday. The rollercoaster week continued when a near-400 point rise on Wednesday was wiped out in the last few minutes of trading.

In the City, the FTSE 100 closed down 108.73 points at 7,170.69, a drop of 1.5%. Since the start of the week, the FTSE has fallen almost 4%, wiping £72bn off the value of the UK’s leading companies.



