Stock prices around the world continued to plunge Friday, threatening to end one of the longest bull runs in the history of the U.S. stock market, which saw its biggest daily drop in almost four years. The truth that the U.S. market went nearly 4 years with out one is traditionally uncommon. The sharp losses sent the blue-chip index into correction territory for the first time since 2011. “That weakness is ricocheting through emerging markets and the global industrial sector”.
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A US recession is not in sight though, according to David Kelly, chief market strategist at JP Morgan Asset Management.
World stock markets tumbled towards their worst week of the year on Friday and commodities had another bruising day after data from China showed its manufacturing sector shrank at the fastest pace since 2009, exacerbating worries about its health. Investors have lost billions as stocks have lost traction over the last few weeks, and it is unclear when the bleeding will stop.
“Many companies and industries depend on the Chinese consumers who are now disadvantaged in purchasing power (following the highly unusual devaluation of the currency)”.
The Standard & Poor’s 500 index, a broader benchmark, fell below the psychologically important 2,000 mark. Down more than 7 percent from its May record, the S&P 500 (SPX) fell 65 points, or 3.2 percent, to 1,971.
The S&P 500 shed 3.19 per cent in the session and 5.77 per cent for the week – a loss representing some $US1.14 trillion in share value. The Nasdaq Composite Index sank 171.45 points, or 3.52 percent, to 4, 706.04, Xinhua reported.
The All Ordinaries closed down 71 points at 5,225 and the ASX 200 was 74 points lower at 5,215. The only silver lining is that oil is now below $40 a barrel for the first time since 2009.
Less demand for oil hurts these country’s economies, which rely on China as a trade partner.
And that isn’t counting the many worldwide markets that dropped precipitously over the last five days of trading.
The worries have seen the FTSE 100 officially enter “correction” territory, more than 10% down from its all-time closing high of 7104 in April and at the lowest level it has been for eight months, at 6187.7.
Indicators in the US economy have been mostly positive in recent months – but some investors have feared that the stock market may have jumped ahead of economic growth.
Investors are also concerned about predictions that the U.S. Federal Reserve Board will raise a key interest rate as early as September. And Fed officials’ quarterly projections for the path of their benchmark federal funds rate, which will be updated ahead of their September 16-17 meeting, could be lowered as a result of that downward revision.
A correction is a decline or downward movement of a stock, or a bond, or a commodity or market index. The Aussie, which is seen as a proxy for the Chinese economy, has fallen about 1% in the past week. It came in at 47.1 points for August, down from 47.8 in July. To be clear, this isn’t about whether the economies of Mainland China and other countries are contracting (yet).
Said OCBC economist Selena Ling: “Markets were prime for a correction over the US Fed hiking interest rates but with China throwing the latest curve ball over the yuan, there is now the added factor of policy uncertainty”. On Thursday, Vietnam devalued its currency, while Kazakhstan allowed its currency to float freely, prompting a decline of about 25 percent.
Traders have been anxious about slowing growth in China and its potential impact on the U.S.
While energy investors feel the pain, U.S. drivers are saving an average of 80 cents on each gallon of gasoline.
US shares headed sharply lower for a third day on Friday.
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Major global indexes logged dramatic declines and are showing no signs of turning around.
