Published: Sat, February 10, 2018

US Stock Market Opens Higher After A Tumultuous Week

US Stock Market Opens Higher After A Tumultuous Week

Traders are bracing for higher volatility as they try to figure out if the swings of the past two days are the start of a deeper correction or just a temporary blip in the USA market's nine-year bull run.

Equity options trading volume, already elevated this week, is likely to pick up as February contracts approach expiration next week, said Jon Cherry, head of U.S. options at Northern Trust Capital Markets in Chicago.

Tuesday was the busiest day of trading on the New York Stock Exchange since November 10, 2016, two days after the presidential election.

On Wall Street, many companies that rose the most over the previous year have borne the brunt of the selling. Facebook and Boeing have both fallen sharply.

Market participants were focused on the threat of higher inflation after Friday's jobs report showed a pickup in wages, which portends more interest rate increases from the Federal Reserve.

After huge gains in the first weeks of this year, stocks tumbled Friday after the Labor Department said workers' wages grew at a fast rate in January.

New York Federal Reserve President Bill Dudley told Bloomberg News on Thursday that if the USA economy keeps getting stronger the central bank may be justified in raising rates four times this year.

Bond prices have weakened in the past week-and-a-half as investors adjusted for the likelihood of a stronger USA economy and higher inflation, which could lead the Federal Reserve to boost interest rates more times than previously anticipated. "They won't be able to provide that nice predictability and certainty that they provided ever since they started the rate hikes a few years ago".

The New York Stock Exchange moments before the closing bell on Thursday, a day when the Dow Jones industrial average dropped 1,033 points.

The Standard & Poor's 500 index, the benchmark for many index funds, also wavered between gains and losses.

The three indexes are now more than 10 percent below their record highs hit on January 26. Nasdaq index dropped by 3.9% (275 points), the S&P 500 dropped by 3.8% (101 points), according to Boston Globe.

The market, now in its second-longest bull run of all time, had not seen a correction for two years, an unusually long time. When bond yields rise, those stocks become less appealing to investors seeking income.

USA consumer prices rose 2.1 percent year-on-year in December and is forecast to stay around that pace this month. The housing industry is solid. Manufacturing is rebounding. Households and businesses are spending freely.

Despite the sea of red in global stock markets, there are hopes that the retreat won't last long given that global economic growth has picked up and the financial system is more robust since the financial crisis. They generally move extremely slowly and they only produce big price swings when the company produces good or bad trading results, which may only happen a couple of times a year at best. "This is just some healthy, and overdue, volatility to wring out any excess". Rising bond yields, he notes, are a sign of economic strength. "As quickly as the market fell, it recovered much of the ground it had lost as investors remembered the economy and corporate earnings remain strong", he added.

"In the absence of recession, a deep bear market is unlikely", he said.

"Investors are nervous about three things", said Larry Hatheway, an economist and Zurich-based asset manager.

USA crude oil dropped 1 percent to settle at $US61.15 a barrel, while Brent fell 1.1 percent to $64.81. The Nasdaq composite rose 2.1 percent to 7,115.88. Sterling was up 0.3% as at 9.20am (GMT) today.

European equities did not go unscathed with the Euro Stoxx 600 dropping 1.6% and the FTSE 100 down 1.5% yesterday.

U.S. Treasury yields climbed after the Bank of England said interest rates probably need to rise sooner, adding to expectations of reduced central bank monetary stimulus around the world. That also sent the pound higher. In Europe, Germany's DAX fell 1.2 percent, while France's CAC 40 lost 1.2 percent. Advancing issues outnumbered decliners on the NYSE by 2,097 to 377. Hong Kong's Hang Seng skidded 5.1 percent and South Korea's Kospi declined 1.5 percent.

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