Stock markets around the world took a battering Tuesday, following a dramatic sell-off on Wall Street that triggered concerns that a potentially healthy pullback from record highs could turn into a protracted bear market.
The selling, which gathered pace Monday when the Dow Jones industrial average posted its biggest percentage decline since August 2011, has been triggered by fears the U.S. Federal Reserve will raise interest rates faster than many in the markets have been predicting in light of a pick-up in wage growth.
“If investors look at underlying earnings growth and the fundamentals of the global economy, there is reason for optimism,” said Neil Wilson, senior market analyst at ETX Capital.
“However once this kind of stampede starts it’s hard to stop.”
Stocks fall in Asia, Europe
Among the biggest fallers on Tuesday was Tokyo’s Nikkei 225 stock average, which ended 4.7 per cent lower at 21,610.24, having earlier been down a massive seven percent. All other Asian bourses tanked, too, including the Shanghai Composite index, which closed 3.4 per cent lower at 3,370.65 and Hong Kong’s Hang Seng, which skidded 5.1 per cent to 30,595.42. Australia’s benchmark S&P ASX 200 slid 3.2 per cent to 5,833.30 and South Korea’s Kospi declined 1.5 per cent to 2,453.31.
The selling persisted into European trading hours, though there was some sign of recovery following the initial losses at the opening bell. The FTSE 100 index of leading British shares was 1.8 per cent lower at 7,206 while the CAC 40 in France fell 1.4 per cent to 5,212. Germany’s DAX was down 1.9 per cent at 12,441.
Though many stock indexes are close to where they started the year, the losses mark a major reversal following a sustained period of gains, a pullback that market pros have been predicting for some time.
Stephen Schwarzman, the chair and CEO of Blackstone, warned recently at the World Economic Forum of a potential “reckoning” in markets.
Futures markets predicting modest improvement
A 10 per cent drop from a peak is often referred to as a “correction” while a bear market is generally defined as a 20 per cent or so drop in indexes. The S&P 500, for example, has fallen 7.8 per cent since it set its latest record high on Jan. 26.
“Seemingly the only hope for the markets at the moment is that investors suddenly decide that the sell-off has been a bit overdone,” said Connor Campbell, a financial analyst at Spreadex.