US close: S&P 500 drops below technical support amid heightened volatility

Hawkish Fedspeak pushed longer-term US bond yields further up towards their pre-Brexit levels, triggering a notable spike in a widely-followed gauge of stockmarket volatility as the S&P 500 was left nursing its largest weekly loss since February.

The Dow Jones Industrial Average dropped 394.46 points or 2.13% to 18,085.45 points, the S&P 500 erased 53.49 points or 2.45% to 2,127.81 points - closing beneath its 50-day moving average - and the Nasdaq Composite went into the weekend off by 133.58 points or 2.54% to 5,125.91 points.

Strikingly, the Chicago Board of Options Exchange volatility index, or VIX, surged 39.89% to the 17.50 point mark.

Markets have been given notice

Boston Fed President Eric Rosengren said on Friday that the risks to the economic outlook were incresaingly "two-edged".

Later in the day, his opposite number at the Dallas Fed, Robert Kaplan, added that "long-term economic headwinds meant the Federal Reserve could afford to be "patient and deliberate in its actions".

"The likely path of rates is going to be flatter, much flatter than we’ve ever experienced historically," Kaplan said.

However, Kaplan did not see signs of overheating in the economy.

"I think the markets have gotten plenty of notice that we are looking for opportunities to remove accommodation.

"I think we are just going to have to debate this out over the next few months as to what the appropriate next steps are," Kaplan concluded.

Earlier in the week, San Francisco Fed President John Williams reiterated that in his opinion the central bank should increase rates sooner rather than later.

The market is now looking ahead to a speech scheduled for Monday by the Fed’s Lael Brainard, a leading 'dove', for any signs of a change in her stance.

Fed funds futures were left pricing in 30% odds of a September rate hike after having indicated as much as a 38% probability of such a scenario at one point during Friday´s session.

Chinese factory-gate deflation bottoming out?

On the data front, the Commerce Department said US wholesale inventories remained unchanged in July after increasing 0.3% in June. Wholesale sales fell 0.4% in July, reversing a 1.7% increase in June.

Overseas, Chinese inflation figures were also in focus, as the country’s producer price index fell 0.8% in August from a year ago, its smallest decline since 2012.

Apple, 2016 high-flyers knocked lower

On the corporate front, shares in technology giant Apple nudged lower on pre-order day for the new iPhone 7.

From a sector standpoint, the worst performing industrial groups were Coal (-6.02%), Gold mining (-5.45%) and Consumer electronics (-5.37%)

Other areas of the equity markets which took a beating included some of 2016´s best performers, including rate-sensitive issues such as Utilities or Consumer staples.

Restoration Hardware surged after its quarterly sales late on Thursday beat expectations, while Finisar Corp also rose sharply after stronger-than-forecast quarterly results.

Lexicon Pharmaceuticals shares jumped as the company reported positive results from a trial of its treatment for Type 1 diabetes.

CAI International Inc. was on the back foot after the logistics company said it expects a $2.6m impact from its exposure to the bankruptcy of South Korean shipping company Hanjin Shipping Co.

West Texas Intermediate was down $1.48 a barrel to $45.88 by the close of trading on NYMEX, alongside an eight basis point move higher in the yield on the benchmark 10-year US Treasury note to 1.68%.