Asian shares tumble after Dow has worst day since 2011

09 February, 2018, 05:00 | Author: Lora Ball
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In early Wednesday trading the Dow Jones Industrial Average was up 228.25 points, or 0.92 per cent, at 25,141.02.

Traders are bracing for volatility to stay high as they try to figure out if the swings of the past two days are the start of a deeper correction or just a temporary blip in the USA market's nine-year bull run.

The Dow and S&P 500 gained over 1 percent on Wednesday, adding to their rebounds made in the previous session, while oil prices dropped after US data stimulated oversupply concerns.

At one point during the trading day it declined more than 1,500 points before recovering slightly. Higher rates, in turn, will make bonds and other fixed-income assets relatively more attractive compared with stocks, which are riskier, spelling the end of the 9-year-old bull market.

The Russell 2000 is down 39.30 points, or 2.5 per cent.

MSCI's all-country index, however, was up 0.2 percent after four days in the red, boosted by Europe's gains - which were the third largest of the year - and those in Japan and Asian emerging markets.

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

As a reminder 2017 saw a historically low level of volatility across the broader markets.

Some investors fear the market is over-stretched in the context of higher inflation and rising bond yields as central banks withdraw their easy money policies of recent years.

Thursday marked another day of sharp swings in recent sessions including the S&P 500's biggest drop in more than six years that pulled equities away from record highs. The Russell 2000 index of smaller-company stocks sank 56.18 points, or 3.6 percent, for 1,491.09.

Do you think a 10-year bond that never pays more than 2.8 percent is a better investment over 10 years than investing in an S&P 500 index fund and holding it?

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While markets were noticeably calmer on Wednesday, there are signs that investors are still far more nervous than they were just a few days ago.

While Tuesday saw US equities roar back, the momentum may already be slipping - Asian and emerging equity gains fizzled while S&P and Dow Jones futures were nearly 1 percent lower.

"Now that the volatility event is over, investors will focus on the economic data and the fundamentals", said Sameer Samana, a global equity and technical strategist. The Nasdaq lost 274 points, or 3.9 percent, to 6,777.

Wrong-footed volatility bets, and not the notion that too much good economic news was rejected by financial markets, has become the dominating theory behind why markets tanked on Monday.

Treasuries popped, sending the 10-year yield down more than 10 basis points, and gold future pushed higher; copper climbed the most in a week.

Yoshinori Shigemi, market strategist at JPMorgan Asset Management, is quoted in Singapore's The Straits Times as saying that with inflation likely in the USA, the appeal of equities will gradually erode, although the markets might well rebound in the short run.

Benchmark Treasury yields rose after the Treasury Department sold new 10-year notes to soft demand and the US Senate reached a budget deal, possibly adding to pressure on stocks.

Other major USA stock indexes also rebounded Tuesday, with the S&P 500 finishing up 46 points, or 1.7 percent, and the Nasdaq up 148 points, or 2.1 percent.

This dip wiped out all gains made in 2018, shortly after a record was set on January 26th, when the Dow Jones Industrial Average closed at 26, 616. The wage pop spooked the markets because investors, already skittish as valuations were a bit steep (though not as bad as people have been saying, given strong current and expected corporate earnings), envisioned this sequence: wage growth gooses price growth (i.e., inflation), which raises both market and Federal Reserve interest rates, which slows growth and shaves corporate profit margins. That's an important metric because it excludes the impact of stores that have opened or closed recently.

Several other companies also have announced employee bonuses or enhanced benefits since Republican lawmakers and President Donald Trump sped a $1.5 trillion tax cut plan into law at the end of previous year. Microsoft and JPMorgan Chase each lost 1.7 percent. Brent crude, the benchmark for worldwide oil prices, rose 25 cents to $67.11 a barrel in London.

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