The Dow Jones industrial average fell 530.94 points, or 3.12 per cent, to 16,459.75.
It was the first full 10 percent correction for the Dow since 2011.
US share prices plunged more than three percent Friday as China’s economic problems drove a major selloff on Wall Street for a second day.
Dennis De Jong, UFX’s Managing Director explains the situation: “What we saw towards market close on Friday goes in tune with the majority of global financial events”.
Q: What is a stock-market correction?
“The U.S. markets have held up well of late, being viewed as somewhat of a safe-haven”, wrote Chris Weston, chief market strategist at IG in Melbourne.
In New York, some analysts called the fall a long-needed correction in shares whose valuations – especially for tech companies – were pushed too far helped by the continued supply of cheap money from the leading central banks in Tokyo, Beijing, Frankfurt and Washington. The benchmark U.S. crude fell 95 cents to $40.37 per barrel on the New York Mercantile Exchange.
“We’ve known that global growth has been slowing for a while, but when China started devaluing its currency and setting off a wave across other emerging markets, it made investors more nervous”.
Investors are also concerned about predictions that the U.S. Federal Reserve Board will raise a key interest rate as early as September.
Analysts pointed to the stark difference between the relative health of the U.S. job market and broader economy, as well as the spread of market anxiety overseas.
The sharp stock losses in China raised concerns over whether the Chinese government’s rescue efforts are capable of restoring market confidence.
Oil’s run of weekly losses is its worst since 1986, when the Organization of the Petroleum Exporting Countries ramped up production and sent it as low as $10 a barrel. Investors interpreted the move as a sign the slowdown in the world’s No. 2 economy could be more extreme that they had thought. Essentially, the Fed said that the U.S. economy is on the upswing, but that inflation isn’t quite there yet, and “almost all members” of the FOMC felt “they would need to see more evidence that economic growth was sufficiently strong” before it would commence with the long-awaited raising of rates. The index also notched its biggest weekly gain for the year. The Shanghai Composite Index closed at 3,507.74 points on the day, 4.3 percent lower than the previous day and its lowest in about 1½ months. “But there doesn’t seem to be any signal that the weakness overseas is slipping into the U.S. economy”. The Mexican peso, a proxy for emerging market currencies, fell 1%.
“That’s manifesting itself in lower oil prices”, he said, pointing to the correlation between stocks and crude futures.
The FTSE 100 has been dragged down by commodity and energy stocks such as Glencore, Shell and Rio Tinto, which together make up 20 per cent of the index.
CURRENCY: The euro rose 0.4 percent to $1.1287.
“Concerns about slowing growth in China are certainly valid”, said Jeremy Zirin, head of investment strategy at UBS Wealth Management. The yield of the 10-year Treasury note fell to 2.054 percent Friday, from 2.08 percent Thursday.
Selling pressure on Wall Street stemmed from downbeat data from China, which resulted in a rout of Asian and European markets as well as a renewed plunge in oil prices.