'Panic over' as Dow stabilizes day after plunge
A collective sigh of relief swept across global trading floors yesterday as bargain hunters swooped on Wall Street stocks, stemming a hemorrhage that had been spreading panic among investors.
With Asian and European equity markets plunging, New York stocks started their trading day with another jaw-dropping fall as the Dow index dived nearly 3 percent, adding to Monday’s record-breaking loss.
But within minutes a fierce battle seemed to be playing out between those betting on a further downturn and those who thought that the market correction had gone too far, leading to some wild price swings.
“Traders don’t know which way to turn as uncertainty is running high,” said David Madden, market analyst at CMC. “The colossal range on the US indexes sum up how irrational equity traders are at the moment, and while some go bargain hunting, others are fearful we could see another leg lower.”
Even as the Dow index gyrated in and out of positive territory, the feeling spread that the worst of the a brutal downturn was over.
“Dow up! Panic over, as you were everyone,” tweeted James Hughes, chief market analyst at AxiTrader.
Jasper Lawler, head of research at London Capital Group tweeted “Trader’s paradise out there right now”, in a reference to volatility which boosts brokers’ earnings.
European stock markets were helped off the day’s worst levels by the Wall Street recovery, but remained deeply in the red at the close.
The sell-off began last Friday when bright US non-farm payrolls data sparked fears that inflation will surge this year — and that the Federal Reserve will be forced to raise borrowing costs more quickly than anticipated.
Earlier yesterday, Tokyo stocks led a collapse throughout Asia, briefly diving almost 7 percent before closing down 4.7 percent.
The Shanghai Composite Index fell 3.35 percent to close at 3,370.65 points.
Hong Kong lost more than 5 percent in its worst day since summer 2015, while Sydney and Singapore each sank 3 percent.
New York’s Dow Jones Industrial Average saw its steepest ever one-day point drop on Monday, shedding a total of 1,175.20 points or a hefty 4.6 percent in value, while the S&P 500 sank 4.1 percent and 10-year US Treasury yields set four-year peaks. 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.
The downturn was so rapid that some investors wondered whether they were headed for a crash, but others welcomed what they saw as a reality check for an overbought market.
“It’s not doom and gloom, and it’s not financial markets Armageddon; it’s just a much needed and much overdue correction,” said AxiTrader’s Hughes.
Analyst Naeem Aslam at trading firm ThinkMarkets said: “Markets usually grind to the upside, but fall like a rock.
“Traders have been looking at the market for the past year moving in one direction which was skewed to the upside. Now, it’s time for the bears to take their revenge.”
Prior to this week’s chaotic sell-off, Wall Street had enjoyed an impressive record-breaking run ever since Donald Trump’s 2016 election on hopes over the US president’s pro-business tax-cutting policies.
Asia and Europe had meanwhile reaped bumper gains from the improving economic outlook.
“If investors had been waiting for an opportunity to take profits, the prospect of higher than expected inflation and tightening by the Fed provided just that,” said Richard Hunter, head of markets at online stockbroker Interactive Investor.
“Rising interest rates, whilst potentially good news for savers, increase the cost of borrowing and the possibility of loan defaults,” he added.
“Mixed in with that, higher bond yields could increase the attractiveness of bonds as an investment destination, some of which will be at the expense of equities.”
On currency markets the yen, considered a go-to unit in times of turmoil and uncertainty, climbed against the dollar.
Bitcoin continued its spiral downward after some banks banned their customers from buying it with credit cards. The news is the latest to hit the cryptocurrency after recent crackdowns by authorities in China, India, South Korea and Russia.