Febrero 19, 2018

Global shares sink after major U.S. index enters correction

10 Febrero 2018, 04:29 | Dolorita Barahona

Global shares sink after major U.S. index enters correction

Global shares sink after major U.S. index enters correction

On Thursday, the Dow Jones Industrials and S&P 500 indexes slumped more than 10 percent from their January 26 record highs, and volatility that plagued the market all week left investors wondering when the market's recent slump would find a floor. Analysts have warned that stock valuations were stretched and that a correction - 10 per cent from a 52-week high - was overdue.

As interest rates rise, the value of existing bonds falls and borrowing to invest becomes more expensive.

On Thursday, the Dow Jones fell by more than 1000 points for the second time this week, and Asian markets followed the downward trend, with Japan's Nikkei 225 shares index closing down 2.3 percent. It's still up 15 percent over the past year.

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. The S&P 500 fell 100 points, or 3.75%, to 2,581.

After losing a record 1,175 points on Monday, the Dow tumbled 1,033 points more on Thursday.

The 10-year Treasury came in at 2.83 percent on Friday, with the note yield almost hitting 2.885 percent on Thursday, a four-year high that produced a big equity sell-off earlier this week. This is the biggest rollover of its performance since February 2016. For the week, the sector that got hammered the most was energy. On one respected valuation measure (Cape) the U.S. market has only been more expensive on two other ominous occasions - 1929 and 1999.

Global shares sink after major U.S. index enters correction
Global shares sink after major U.S. index enters correction

In the case of individual equities, domestic United Kingdom stocks have become even cheaper after suffering further share price falls, while in terms of sectors banks stand out for their low valuations. Following strong unemployment numbers last week and GDP growth powering ahead, markets are now anxious about inflation kicking back in, which will mean more rate rises to combat it'.

Banks .SX7P , whose lending businesses benefit from rising rates, ended the week down 4.6 percent, in line with the broader market weakness following a strong start to the year. The yield on the 10-year note was as low as 2.04 percent as recently as September.

Analysts cited higher Treasury bond yields as the catalyst for the drop, coupled with the view that the market surged to unsustainably high levels in December and January in the euphoria over USA tax reform. "And that is a process that is playing out". It may seem disturbing that the market can lose three months' worth of gains in just a week or two, but most investors have hung onto the vast bulk of their profits from their longer-term investments.

In the USA, stocks have fallen anew in another trading session with big swings, as investors remain on edge after several days of volatile trading. The S&P 500 and Nasdaq also dropped about 1.5%. The Nasdaq Composite closed at 6,777.16 for a loss of -274.82 points or -3.90%.

Volatility remained high compared to recent months. Historically, 10% declines in the markets happened roughly once a year. "When people go through extended periods of low volatility and they see this, it can make it feel even bigger than it really is". It was the first time weekly volume eclipsed 50 billion since August 2015.

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