Published: Sat, February 10, 2018
Business | By Max Garcia

U.S. markets turmoil: Why this is a correction and not a crash

U.S. markets turmoil: Why this is a correction and not a crash

As the day wore on, it became evident major USA stock indexes were headed toward their fifth loss in the last six days, erasing big gains in the first weeks of the new year.

European stocks look set to extend losses from the previous session on Friday after the Dow Jones Industrial Average plunged 4.2 percent to enter correction territory overnight amid rising government debt yields on worries that the Federal Reserve may fight inflation by aggressively raising interest rates.

Global markets also fell.

The pan-European FTSEurofirst 300 index lost 1.74 percent and MSCI's gauge of stocks across the globe shed 1.98 percent.

The Dow Jones industrial average fell 4.15% to 23,860 points, just three days after falling 4.6% on Monday. By closing at 23,860 points, the Dow Jones industrial average was set back to its level on November 17, 2017, and officially corrected.

The S&P 500 slumped 3.8 percent on Thursday, while the Dow dropped 4.2 percent as losses accelerated late in the trading day.

Even with the recovery, the Dow is headed for its worst week since the 2008 financial crisis.

Investors are weighing whether the sharp swings 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. Britain's FTSE-100 Index fell 1.5 percent and Germany's DAX plunged 2.6 percent.

Chipmaker Nvidia was up about 6.7 percent in premarket trading after its upbeat results and forecast.

Australia's S&P/ASX 200 was up 1.0 per cent at 5,889.60.

"Investors should avoid the "hero complex" and try to declare a bottom", he says.

Ireland's benchmark Iseq overall index followed suit and finished 1.58 per cent weaker, with Glenveagh, down 2.5 per cent, and CRH, down 3.06 per cent, among the losers on the index.

The S&P 500's market value surged $6 trillion between President Trump's election and the all-time high on January 26.

Bond prices rose. The yield on the 10-year Treasury fell to 2.83 percent from 2.84 percent. The deluge of Treasury supply is finally having a negative impact on the market, partly offsetting demand from investors seeking shelter from the rout in equities and volatility that has exploded across all assets. The Dow is still up 20 percent over that time, the S&P 500 15 percent. That's less than the 10 per cent seen as a correction. Natural gas added 1 cent to $2.76 per 1,000 cubic feet.

The Dow was up 264 points, or 1.1 percent, at 24,122. Stocks over the long term create more wealth than fixed-income bonds, but they are more volatile and have more risk. Tokyo's Nikkei 225 lost 2.3 percent and Hong Kong's Hang Seng gave up 3.1 percent.

In earnings news, Twitter (TWTR.N) rose 12.2 percent after the social media company delivered its first quarterly profit and an unexpected return to revenue growth.

"The markets went into being religiously over-bought to deeply over-sold in a matter of four trading days", said Adam Sarhan, chief executive of 50 Park Investments, an investment advisory service. The last fall of that size came in August 2011 when investors were fretting over Europe's debt crisis and the debt ceiling impasse in Washington that prompted a US credit rating downgrade.

This compares to the blue-chip index closing yesterday at 1.5% while the Euro Stoxx 600 was down 1.6%.

Like this: