But if inflation shows signs of accelerating, the Fed will raise rates higher and faster than now expected-which would likely kill the nine-year-old bull market. So did the exchange-traded instruments that profited from low market volatility-and got clobbered when volatility spiked.
As big as the Dow's drop seems to be, it has only taken the Dow back down to levels that it first hit in November.
"I normally wouldn't be looking at my iPhone, but given the market moves, I am checking it", he told lawmakers on the House Financial Services Committee.
Financial analysts regard corrections as a normal event but say the latest unusually abrupt plunge might have been triggered by a combination of events that rattled investors. For example, the market may go up 5%, linger, and come down 2% over a few days or weeks.
LPL Research released a report titled "Volatility is Back", which pointed to fear of rising interest rates as the source of the recent swings but cautioned that the economy is fundamentally strong.
Global markets fall amid growing tensions in the Middle East between Iran and the U.S., with warships attacked. U.S. West Texas Intermediate (WTI) crude settled at $59.20, down 3.2 percent.
The broad-based S&P 500 dropped 100 points or 3.75%, and the tech-rich Nasdaq was down 3.9%. All 30 of the blue-chip Dow industrial components finished negative.
The NASDAQ, the third major index in the U.S. and the one that includes the big tech names like Apple, Google, Amazon and Facebook, was down 9.7 per cent - just 30 basis points short of a correction.
The Dow was up 264 points, or 1.1 percent, at 24,122.
The 10-year Treasury came in at 2.83 percent on Friday, with the note yield almost hitting 2.885 percent on Thursday, a four-year high that produced a big equity sell-off earlier this week. "In the absence of recession, a deep bear market is unlikely", he said.
Federal Reserve Bank of Dallas President Robert Kaplan said in an interview with Bloomberg Television on Thursday that more volatility in equity markets will have little impact on the broader economy, suggesting an important shift in the outlook for interest rates. "You're seeing real changes occur and different investments are adjusting to that", O'Rourke said.
The Dow fell 1,032.89 points Thursday to 23,860.46, which is 10.4 percent below its record close of 26,616.71 set on January 26.
Like the tale of Eskimos having dozens of words for snow, investors have many words for a decline in the stock market. Traders speculated that the breaching of technical levels prompted a frenzy of automated selling.
As on other days this week, the losses followed some initial gains, raising the market's main gauge of volatility, the CBOE Volatility Index.VIX to 36.13 points, three times what it was a week ago.
Investors are still weighing whether the sharp swings this week are the start of a deeper correction or just a temporary bump in the nine-year bull market, spurred by concerns over rising interest rates and bond yields.
Ninety-six S&P 500 stocks are down 20 percent or more from their own one-year highs, according to Thomson Reuters data.
Alexandra Coupe, associate director investment manager at Pacific Alternative Asset Management Co., said rising inflation makes stocks less attractive. "There's kind of an emotional reversal that's going on".
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