As the selling accelerated, some benchmark indexes were at or near 10 per cent below their recent peaks – a “correction” in Wall Street parlance.
Q: What is a stock-market correction? The Dow Jones Industrial Average closed 10% below its recent high on the same date. You can get into a market correction or even a bear market, but consider yourself formally dared to try to live without your water utility.
US stocks tumbled on Friday in the sharpest one-day drop since 2011, erasing gains for the past year amidst a global stock rout, triggered by the Chinese economic crisis, a series of collapses in emerging markets and a deepening decline in commodities with crude oil falling below $40/bbl. Many money managers and economists say they expect central banks to again prevent deeper troubles through efforts they already have under way. Stocks had been priced for perfection after a six-year bull market run.
Stock indexes in France, Spain, Belgium and the Netherlands fell into correction territory. On May 21, the S&P 500 jumped to a record high just as European shares were in the midst of a 10 percent retreat over Greece’s impasse with creditors. Currently, the S&P is about 6.3% off its high. The S&P/TSX composite index declined more than five per cent on the week, bringing the Canadian equity benchmark to its lowest level since February 2014. Moreover, we do not know if the stock market will continue to fall or if it will rally quickly. But he said he is waving a ” yellow flag of caution” for the short term.
“Quite frankly, I think that’s just an excuse”, Savard said in a telephone interview. In many cases in the postwar period, the United States stock market has recovered after reacting negatively to problems overseas. Both indexes dropped 2.1 per cent that day, before further tumbling on Friday.
Seoul fell 2.01 percent, or 38.48 points, to 1,876.07 as tensions climbed with North Korea, and Sydney dropped 1.40 percent, or 73.98 points, to close at 5,214.60. The index dropped 5.8% on a weekly basis, the steepest decline since September 2011. U.S. crude fell 69 cents to close at $40.45 in New York.
GLOBAL stocks have been hit hard over concerns for the Chinese economy, with a gauge of the country’s manufacturing activity on Friday providing the latest sign of a slowdown in the world’s second-largest economy.
Federal Reserve Interest Rate – While the majority of the focus is being placed on China, I believe that the Federal Reserve is also playing a role in the negative movement we’re seeing in the market.
The Dow’s dramatic slide could be related to a number of factors, including a report out of China that its manufacturing sector had shrunk in the first three weeks of August at the fastest rate since 2009. It followed an eight-month stretch of low volatility that had virtually no precedent in U.S. equities. “We are watching really closely the connection to the rest of the world and whether this is enough to slow growth in the rest of the world”.
“Global markets are in panic mode as the full scale of China’s slowdown becomes clearer”, said Angus Nicholson at IG Markets in Sydney. But analysts with Credit Suisse now put the likelihood of a rate hike next month at less than 50 percent. But a Fed delay would be viewed by many as a gesture of support and a positive for stocks.
But the Fed appeared to pour cold water on those expectations earlier this week, after minutes released from July’s meeting suggested members of the policy committee weren’t convinced that the global economy could weather a hike at this point.
But he also pointed to pricey valuations recently, given modest growth prospects in the US economy.
As a result, the Fed might decide to wait until later in the year, or longer. “It’s still an open question on whether they would move in September or not”. Investors worry that China and other major emerging economies will reduce their imports.
“Household finances are growing more healthy… but you want to see a pickup in spending, too”, said Tim Courtney, chief investment officer of Exencial Wealth Advisors.