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Stocks set for sharp rebound, but still on track for worst week since March

U.S. stock benchmarks looked set to rebound Friday, following a multiday rout that slashed about 1,400 points from the Dow Jones Industrial Average and left the Nasdaq on the precipice of correction.

How are the benchmarks performing?

Futures for the Dow Jones Industrial Average

YMZ8, +1.06%

 were up 154 points, or 0.6%, those for the S&P 500 index

SPX, -2.06%

 were gaining 21.35 points, or 0.8%, at 2,766. Meanwhile, futures for the Nasdaq-100 were advancing 89.75 points, or 1.3%, at 7,119.75.

On Thursday, the Dow

DJIA, -2.13%

tumbled 545.91 points, or 2.1%, to 25,052.83, bringing its two-day decline to 1,378 points.

The S&P 500

SPX, -2.06%

lost 57.31 points, or 2.1%, to 2,728.37. The benchmark fell for a sixth straight day, its longest losing streak since a nine-day drop that ended in November 2016, and it closed below its 200-day moving average for the first time since April. All 11 primary S&P 500 sectors ended lower, led by the energy and financials sectors.

The Nasdaq Composite Index

COMP, -1.25%

shed 92.99 points, or 1.3%, to 7,329.06 after briefly dropping into correction territory.

The Russell 2000

RUT, -1.91%

 an index for small-caps, finished in correction territory after falling 27.27 points, or 1.7%, to 1,547.83.

For the week, the Dow is down 5.3%, the S&P has lost 5.5% and the Nasdaq is down 5.9%. All three are on track for their biggest weekly decline since March. Both the Dow and the S&P are on track for their third straight weekly loss, while the Nasdaq has dropped for two.

All 11 S&P 500 sectors are on track for weekly losses of at least 1%. Industrials and materials both fell about 7% on the week.

Read: Here’s how much damage has been done to the stock market during a powerful rout

What’s driving the market?

While investors will be closely monitoring bond yields, a primary catalyst for the recent decline, Friday also marks the unofficial start to the third-quarter earnings season. JPMorgan Chase & Co.

JPM, -3.00%

 was one of the first to report, while Citigroup Inc.

C, -2.24%

 and Wells Fargo & Co.

WFC, -1.89%

 remain scheduled to release results, providing the first clues into how American corporations are faring in the current environment.

This weeks powerful market selloff has been sparked by a sudden rise in long-dated interest rates since late September, particularly in long-dated 10-year Treasury note

TMUBMUSD10Y, +0.73%

which rose to a seven-year high above 3.26%.

However, the downdraft has accelerated amid a wave of concerns about stock-market valuations in an environment where the Federal Reserve is steadily lifting interest rates to normalize policy from crisis-era levels.

Higher yields raise borrowing costs for corporations. They also divert investment away from stocks. Market turmoil, however, appeared to spark haven demand for U.S. bonds, with the yield on the 10-year note down more than 6 basis points to 3.158%.

Third-quarter earnings will be a major driving as companies report over the coming weeks. According to FactSet, analysts are looking for earnings growth of about 19% and sales growth of 7%. While such growth points to an improving economy, there are also concerns that expectations have gotten too optimistic, or that the quarter could represent the peak earnings season, as much of the earnings growth can be credited to the tax bill passed late in 2017.

What are analysts saying?

“What investors need to get their heads around is that even though the U.S. economy is ticking along and the prospect of interest rate hikes has only dawned on them in the last few weeks, higher interest rates aren’t the end of the world,” said David Madden, market analyst at CMC Markets. “Higher interest rates are warranted when the economy is strong.”

What stocks are in focus?

Financial stocks will likely be among the most active, given the results that are scheduled to come out. Investors will also be looking for any commentary on how management teams expect to fare in a rising-rate environment.

J.P. Morgan reported third-quarter earnings and sales that beat expectations. The stock rose 0.8% before the bell.

The sector has struggled throughout 2018, falling 5.4% as of Thursday’s close, compared with the 2.1% rise of the S&P 500. JPMorgan is up 1.1% while Wells Fargo has dropped 15% in 2018 and Citigroup is off 8.1%.

Technology stocks will also remain in focus, as the sector was among the most hit in the week’s slump. Apple Inc.

AAPL, -0.88%

 is down 4.4% thus far this week, while Google-parent Alphabet Inc.

GOOGL, -0.13%

GOOG, -0.18%

 has dropped 6.6%. Microsoft Corp.

MSFT, -0.24%

 is down 5.6%.

Perhaps the week’s biggest drag has been Amazon.com Inc.

AMZN, -2.04%

which is down 9% this week and tumbled into correction territory.

Where are other markets trading?

Shares in Asia closed higher in a rebound from recent weakness, although they still posted sharp weekly losses. Major European indexes were also higher on Friday.

Crude-oil prices rose 0.6% while gold was down 0.3%. The U.S. dollar index rose 0.1%.

Providing critical information for the U.S. trading day. Subscribe to MarketWatch’s free Need to Know newsletter. Sign up here.

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