US equities stabilized in a volatile trading session Friday as Treasury yields were on track to get their largest weekly increase in 10 years. Investors reconsidered their positions as the Federal Reserve prepares to discontinue its economic stimulus.
Markets are changing according to the Fed’s plan announced earlier in the week. The central bank will reduce its asset purchases later this year if the economy keeps improving. Chairman Ben Bernanke outlined the timeline for the plan as the interest rates keep on increasing and equities markets selling off.
A banking crisis in China was averted and helped calmed the markets. Short term funding rates in China remained high, especially for smaller lenders.
After a volatile trading session, US stocks closed higher after a two day selloff. Ten year Treasuries yields increased above 2.50 percent, which was their highest intraday level since August of 2011. The 10 year yield was on track to increase 40 basis points for the week, which is the biggest weekly advance since March 2003. The dollar increased and on track for its largest weekly rise since July 2012.
Major US stock indexes got their worst week since April. Standard & Poor’s 500 Index remained below its 50 day moving average after it got under it Thursday. Most investors thought the selloff was overdone but the factors that drove the markets down were still in place.
MSCI’s broad world stock index was down 0.3 percent. Europe’s FTSE Eurofirst 300 Index fell 1 percent. The Dow Jones Industrial Average gained 41.08 points to 14,799.40. The S&P 500 went up 4.24 points to 1,592.43. The Nasdaq Composite declined 7.39 points to 3,357.25.
At present, the Fed is purchasing $85 billion per month in bonds as part of its stimulus program that has made investors embrace riskier assets and led to the 15 percent of the stocks for the year. Investors are now slowing down those trades that are expected to continue to impact global markets.