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Dow falls greater than 460 factors to lose the week on rate of interest fears

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The Dow Jones Industrial Average swung wildly on Friday, closing near its session low as Wall Street struggled to shake off fears of rapidly rising interest rates.

The blue chip benchmark ended the volatile session at 469.64 points, or 1.5%, to 30,932.37 after previously trading in the green. The S&P 500 fell 0.5% to 3,811.15 as energy and financial stocks pulled back. The Nasdaq Composite ended the day 0.6% higher at 13,192.34 as big tech names rebounded from a sharp sell-off in the previous session on rising bond yields. Facebook, Microsoft, and Amazon each grew by more than 1%. The tech-heavy benchmark spun in Friday’s session, where it jumped 1.9% from its high and even fell 0.7%.

All three major averages posted weekly losses as fears of higher interest rates and inflation deepened. The S&P 500 was down 2.5% this week for the second year in a row. The 30-share Dow was down 1.8% and the Nasdaq was the relative underperformer this week, down 4.9%.

The weakness in the broader market also came after the price index for personal consumption expenditure showed subdued inflation in January. The PCE index, which the Federal Reserve is closely monitoring, rose 0.3% for the month, slightly above expectations of 0.2%. However, it rose only 1.5% year-on-year and was in line with Dow Jones estimates.

The 10-year government bond yield fell 10 basis points to around 1.42% on Friday after rising above 1.6% at one point on Thursday. Government bond yields initially fell after the inflation data was released, but rebounded higher and triggered the intraday slump in major indices. Even as they ended the day much lower, stocks couldn’t shake fears that higher interest rates could stop the stock rally.

“Despite the unruly nature of the sovereign bond sell-off yesterday, credit spreads remained limited, but if spreads widen significantly and a sell-off occurs, the Fed – and markets – must really be concerned,” said Quincy Krosby, Prudential Financial’s chief market strategist .

Falling interest rates alarmed stock investors, bringing the Nasdaq Composite to its worst session since October on Thursday. The 10-year interest rate has increased more than 50 basis points since the start of the year, a sharp increase for a bond rate that is used as a benchmark for mortgage rates and auto loans.

Despite this week’s weakness, all stock benchmarks ended February with modest gains. The S&P 500 and Dow rose 2.6% and 3.2% respectively, and posted their third positive month in four months. The tech-heavy benchmark gained 0.9% this month.

Economists and investment managers say the bond market responds to positive economic conditions as vaccines roll out and GDP projections improve, which should benefit corporate earnings. The move could also signal inflation faster than expected.

“When the market starts to believe that the Fed has somehow lost control of where the bond market is going, all this tantrum idea is going to crop up,” Art Cashin, director of floor operations at UBS, told CNBC’s “Squawk” on Friday. in the street.”

The sheer pace of the surge has also dampened investor appetites for highly valued areas of the market. Higher interest rates reduce the value of future cash flows, so they can compress stock valuations. With Thursday’s 10-year yield spike, it was also above the S&P 500’s dividend yield, meaning stocks – considered riskier assets – have lost that fixed-payment premium over bonds.

Investors are investing money in what are known as reopening businesses and buying stocks of companies that would benefit most from the introduction of the vaccine and a return to regular travel and hospitality trends.

Energy gained 4.3% this week, up more than 21% in February. Energy is by far the biggest winner as consumers around the world are expected to soon be driving and flying the way they did before the Covid-19 pandemic. Financials also rose 11% that month, benefiting from rising interest rates.

– CNBC’s Kevin Stankiewicz contributed to the coverage.

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Katherine Clark