Germany's 10-year bond yield, the benchmark for the bloc, fell as low as 0.671 percent, down 7 basis points on the day and was set to close the day at 0.69 percent, still well below Monday's more-than-two-year high of 0.774 percent.
But during the past three-plus decades, investors have endured a number of bigger percentage drops in the stock market. "While we don't think Friday's selloff is the beginning of a severe correction, the pressure on stocks will continue with high volatility making the mood in the marketplace uncomfortable".
Delta, Chevron, Hess and D.R. Horton are all more than 10 percent off their 52-week highs as the market retreats.
The tug of war "is just getting underway", Guggenheim's Minerd said in a Twitter post. A rise commodity prices also raises inflation. The FTSE was down 1.46 percent and the Nikkei 225 finished down 2.55 percent. Its 4.6% plunge on Monday was its biggest since August 2011, during the European debt crisis. That catapulted 10-year Treasury yields - a key global interest rates indicator - to fresh four-year highs.
USA crude CLc1 fell 1.99 percent to $64.15 a barrel, while Brent LCOc1 fell 1.4 percent to $67.62.
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But with the Federal Reserve seen likely to raise short term interest rates another three or four times in 2018, bond yields have been rising, and last Friday's healthy USA labor market report sparked fears of rising inflation, leading to Monday's sharp bout of profit taking. Energy companies, banks, and industrial firms are taking some of the worst losses. "The 6 month annualized rate of core CPI stands at 2.2%, measures of prices paid are at multi-year highs and recent wage data has also shifted to new cycle highs". The rise in bond yields hinders stock performance in two ways: it makes corporate borrowing more expensive and it makes bonds more attractive to investors compared to riskier stocks.
"To the extent that involves higher yields, chances are it would also bring back lower utility stock valuations".
Ed Yardeni, a longtime stock market analyst, points out that the current bull market has been going since March 2009.
The ISM non-manufacturing index touched 59.9 in January, which was above the expected 56.5 (as per survey of Reuters economists), giving signs of growth in the economy's service sector. Experts have been warning that that wouldn't last forever.
The Dow Industrials fell almost 1,600 points during the session, its biggest intraday decline in history.
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"The issue with this kind of fall is that it becomes a snowball effect, and after such astronomical gains since Election Day 2016 the falls can be equally as aggressive, but nobody could say that a correction has not been due". Brent crude, the standard for worldwide oil prices, lost 96 cents, or 1.4 percent, to $67.62 a barrel in London. To jump-start growth, central bankers around the world slashed interest rates and took other steps to push down yields on safe government bonds.
"Even if you think it's gone too far, or even if you think we've sold off a little more than probably warranted at this point, you don't really have those buyers that are willing to step in and stop it until we see some signs of slowing", said Blake Gwinn, an interest rate strategist at NatWest Markets in Stamford, Connecticut.
The dollar was boosted by the jobs figures and on Monday managed to hold on to the gains it made against the yen, pound and euro.
Gold lost 0.1 percent to $1,331.67 an ounce. Now if you reverse PE (i.e. 1/24.53 or 4.07 per cent), you get what is called the earnings yield. Leading political parties in Germany, which is the largest economy in Europe, have struggled to form a government. The DAX in Germany shed 0.8 percent.
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