That means they are in what is known on Wall Street as a “correction,” their first in nearly two years. Prior to the sell-off, the expectation was that a market dip was inevitable at some point as valuations became pricier, particularly in the US.
US fund investors sucked $23.9 billion out of the stock market in the latest week, marking the largest withdrawals from those funds on record, but bulls were still encouraged by strength in the global economy and solid USA corporate earnings.
The Australian share market, and other markets in the Asia-Pacific region, have fallen sharply as investors are again caught up in the turmoil on U.S. markets. On Monday, Feb. 5, the Dow Jones Industrial Average fell 4.6 percent, losing 1,175 points, to close at 24,345.
By 12:54 p.m. ET it was down 1.7 percent on the day and 11.1 percent since highs hit on January 26. Earlier in the day it had dropped by 500.
The most recent bear market began in October 2007 and lasted until March 2009, with the S&P 500 plummeting 57 percent amid the chaos of the Great Recession and financial crisis. The Dow Jones Small-Cap Growth TSM Index closed at 9,133.64 for a gain of 76.96 points or 0.85%. This has investors searching for answers.
Analysts said they are necessary course adjustments that keep stock prices on a broader upward trajectory. The Dow fell 528 points on Thursday.
Twitter had a banner day, soaring 12 percent after turning in a profit for the first time.
The market’s recent volatility has wiped out the Dow’s gains (and the S&P 500’s) for 2018. As Alex Scott, chief strategist at Seven Investment Management, points out, quantitative easing policies have “underpinned market confidence and valuations” for a number of years now.
“It shows how nervous the market is about the prospects for interest rates and normalisation of interest rates and inflation”.
Terry Smith, one of the UK’s cleverest and most successful fund managers, has always set his face against trying to “time” the market by trying to establish what is the best time to buy or sell. In the past two weeks, inflation fears were stoked by economic data that confirmed a spike in consumer and business spending, an exceptionally strong USA labor market and the return of rising wages.
According to the Washington Post, the 10-year Treasury went up to 2.9%, which is just 0.1% below the critical 3% mark. “The market is pricing in potential for some overheating”. Chipmaker Nvidia (NVDA) added $14.56, or 6.7 percent, to $232.08.
For a market that hadn’t fallen 3% from any high in more than a year, the week’s action was enough to rattle even the biggest equity bulls. “You don’t want to be caught in fixed income as rates are moving up”. Raising rates is the first maneuver many of these monetary regulators will make. The worry, he said, is that the Fed will raise interest rates too quickly.
“A correction is a reverse movement, usually negative, of at least 10 per cent in a stock, bond, commodity or index to adjust for an overvaluation”.
Understandably, investors have been left questioning the future outlook for the stock market.
Emerging market stocks lost 1.74 percent. Economic growth is robust, led by continued strength in consumer and business spending.