The stock market recovered after an early plunge Tuesday and was little changed in morning trading, raising hopes of a halt to a global sell-off in stock markets. The swings came one day after the steepest drop in six and a half years. (Feb. 6)

The Dow Jones industrial average plunged 1,033 points Thursday, its second-worst drop in history, extending its losses in the recent sell-off to more than 10% and putting it officially into correction territory.

The blue-chip stock average’s recent drubbing, which follows its record 1,175-point drop Monday, has been fueled by fears that an era of low interest rates and tame inflation that have driven up stock prices may be nearing an end.

“The Dow has been hit by a tsunami of volatility,” says Paul Schatz, president of Woodbridge, Conn.-based investment management firm Heritage Capital. “The market is repricing in a lot of factors at once. And rates have run up fast. The market always has a tough time when things happen in a linear fashion.”

The Standard & Poor’s 500 stock market, a broader gauge that is a core holding in 401(k) plans, also fell into correction territory. It’s 10.2% drop since its Jan. 26 record high is its biggest since a 14.2% fall ending in February 2016.

Despite Thursday’s downturn, stocks remain in a bull market than began in March 2009. It would take a 20% drop for that long-term rally to end and to usher in the first “bear” market in nearly a decade. 

The 10% stock decline since late January has occurred even though Wall Street and President Trump stress that the health of the economy, labor market and U.S. businesses remain strong. 

The stock market has also been upended by an unwinding of a popular trade that relied on the market remaining calm. But that trade has turned bad amid price swings that have turned suddenly violent since the market’s peak last month. 

Sparking the initial turbulence was a report released last week showing that hourly wage growth rose at its fastest pace since 2009. That strong pay data sparked fears of coming wage inflation, which intensified worries that the Federal Reserve might need to hike rates more often this year than the three times it had originally signaled.

On Thursday, the yield on the 10-year Treasury note again ticked up to a recent four-year high of 2.88%, sparking fears that rates could quickly top the key 3% level. At that level, bonds become a more attractive investment and draw money away from stocks.

“The market has undergone a psychological change,” says Doug Ramsey, chief investment officer at The Leuthold Group in Minneapolis. “The mystery now is what level on the 10-year Treasury will, if not break the bull market’s back, at least knock it back a few steps.”

While Wall Street has been calling for a correction for some time, given the market’s euphoric rise, the fall has been more violent and quicker than anticipated.

More: Why haven’t the markets been halted amid this drop? They haven’t fallen enough

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Tom Martin, senior portfolio manager with Globalt Investments, said he didn’t see anything specific moving the market lower Thursday, just a continuation of a shift in investor mindset from fear of missing out in a rising market to worry of clocking big losses in a market that’s turned south.

“This is going to take longer to work out than people expect,” he said. “In January we talked about the fear of missing out. What we have now is what I call fear of getting caught.”

Contributing: Associated Press

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