Stock prices fell sharply from near record highs Friday, with the Dow Jones industrial average tumbling 666 points, or 2.5%, to close out the worst week on Wall Street in years.
The main trigger was growing concern about rising interest rates and inflation, and their impact on stocks going forward, as the yield on the 10-year Treasury note reached its highest peak in four years, analysts said.
But they said that many of the fundamental factors that have driven stocks higher — including rising corporate earnings — remain intact, and that Friday's trading had no signs of panic selling.
Indeed, they said the pullback was not surprising given the market's remarkable surge of the last 12 months, which extended a nine-year bull market in stocks.
"The fundamentals are still OK," said Patrick O'Hare, chief market analyst at the investing website Briefing.com. "The easy money had been made, and it will be more challenging to extend the gains as interest rates move higher."
The Dow Jones industrials fell 665.75 points to 25,520.96. That was the worst point drop since the blue-chip average fell 678.92 points on Oct. 9, 2008, in the midst of the nation's financial crisis.
But whereas that 2008 drop amounted to a 7.3% drop, Friday's decline was only 2.5% because prices have climbed so much since then.
Another comparison: When the Dow plunged a record 22.6% on Oct. 19, 1987, it was a drop of 508 points because the average was so much lower at that time.
Still, Friday was the Dow's worst drop in percentage terms since June 24, 2016, when the markets were rocked by Britain's surprise vote to leave the European Union.
All 30 of the Dow's component stocks fell, with energy, technology and financial shares posting some of the heaviest declines.
The S&P 500 fell 59.85 points, or 2.1%, to 2,762.13, and the tech-heavy Nasdaq composite index dropped 144.92 points, or 2%, to 7,240.95.
Only a week earlier, all three of the major indexes had set record highs.
That made the market ripe for investors to cash in part of their profits from the rally, and the growing interest rate worries provided one of the sparks to take money off the table, analysts said.
For instance, the benchmark Standard & Poor's 500 index jumped an eye-popping 7.5% in January alone.
"Did you think 7% was going to be a normal monthly gain? It's just not," said Art Hogan, chief market strategist at Wunderlich Securities.
"Stocks got ahead of themselves," Hogan said.
Greg McBride, chief financial analyst at Bankrate.com, said in a note to clients that "there's no telling if the market will continue to correct or not," but that he still felt "it is a good buying opportunity."
"Even after some long overdue volatility, the S&P 500 still closed higher than it did on Jan. 10," McBride said. "All we've done is unwind three weeks' worth of gains."
Concerns about rising rates and inflation were heightened by a robust U.S. jobs report released Friday that showed the largest year-over-year percentage gain in average hourly wages, 2.9%, since June 2009.
The Labor Department report also showed sustained low unemployment in January at 4.1%, and that employers added 200,000 jobs last month.
"All that feeds into the narrative and fuels the flames about inflation picking up," which could lead the Federal Reserve to further lift short-term interest rates to keep inflation in check, O'Hare said.
Any increase in rates puts upward pressure on business and consumer borrowing, where rates could trend higher for home mortgages, auto loans and other big-ticket purchases.
The economy's growth already has helped push up market interest rates, and the yield on the Treasury's 10-year note hit 2.84% on Friday, its highest level since 2014.
"As rates move up, the valuations of stocks get called into question" about whether they're overpriced, O'Hare said.
The S&P 500 stocks had been trading at an average of between 18 and 20 times the forecasts of their underlying corporate earnings for the next 12 months, which was above their historical average of 15.5 but well below the price-earnings ratios seen in prior stock market bubbles that later collapsed.
It's widely expected that corporate earnings will continue to grow by double digits, especially now that the U.S. tax reform plan has cut the federal corporate tax rate to 21% from 35%. But it remains to be seen whether that earnings growth will lead to further gains in stock prices.
President Trump, who repeatedly has touted the stock market's gains as evidence that his economic policy efforts are paying off, trumpeted the January jobs report on Twitter. He made no mention of the stock market's lousy day.
Still, the Dow Jones industrials are 39.2% higher since Trump was elected despite Friday's pullback.
Others have said U.S. stocks were rising mostly on the economic growth that's been seen worldwide in the last two years, which also had sent foreign stocks higher. But stock prices fell across the globe Friday, with major indexes also dropping in Europe and Asia.
Technology stocks took a particular drubbing Friday. After soaring earlier on expectations of continued strong earnings growth, some of the industry's top players — including Apple Inc. and Google parent Alphabet Inc. — this week posted mixed quarterly results that contributed to the sell-off.
"Many stock investors feel as though a correction is overdue" after the rally in tech stocks, said Clement Thibault, a senior analyst at Investing.com. "It doesn't have to be Armageddon, but it certainly has been an extended streak without even a 5% correction in the market.
"I don't think today's drops are a big surprise, and Monday's open [of trading] will tell us a lot more on the state of the stock market, once everyone has the weekend to reconsider their positions," he said.
For companies such as Apple — whose stock skidded 4.4% on Friday, giving it a 5.2% loss for the year so far — Thibault said he wasn't concerned and in fact saw it as a buying opportunity.
"It's not uncommon for Apple to experience cyclical drops of 7% to 9%, only for the stock to resume its upward trajectory afterward," he said.
Apple's fiscal first-quarter 2018 earnings beat analyst expectations. But a drop-off in phone sales and a lowered second-quarter guidance caused some investors to worry.
Some stocks bucked Friday's decline. E-commerce giant Amazon.com gained 2.9%, Charter Communications Inc. rose 4.4% and Mattel Inc. surged 7.9% as investors speculated that Mattel's current restructuring would stem a years-long drop in the toymaker's sales.
Times staff writer Tracey Lien contributed to this report.
3:30 p.m. This article was updated with details about the impact of higher interest rates on consumer borrowing and to include stocks that rose Friday.
3 p.m.: This article was updated with details about the U.S. jobs report for January, the outlook for corporate earnings and stock prices, additional analysts' comments and more details of the drop in technology shares.