What's a Market Correction?

What's a Market Correction?

The Dow Jones industrial average nose-dived more than 1,000 points Thursday, registering another eye-popping loss for the closely followed stock market barometer, as fears of rising interest rates rattled traders on Wall Street.

The stock market finished the day sharply higher, but only after another session of wild price swings.

Torsten Slok, chief global economist at Deutsche Bank, told the Financial Times: "Markets are coming to the conclusion that the US economy is close to overheating and therefore that the risks of inflation are bigger than the risks of a recession". After numerous turns higher and lower, it wound up with a gain, coincidentally, of 567. Many market watchers had also been predicting a pullback after the market's relentless march higher over the past year.

The surge in volatility on Monday, which sent the VIX spiking to multi-year highs in just hours, led to the implosion of products created to bet against volatility, exacerbating markets stresses in a rapid unwind.

It's a big shift from 2017 and the beginning of 2018, when the stock market went the longest period ever without tumbling. If bond yields start to rise, investors will want to take some of their money out of stocks and put it into safer bonds.

Earlier in the week, the 10-year Treasury yield hit 2.88%, its highest level in four years.

It had lost 1,175 points or 4.6 per cent yesterday - marking its largest daily points drop in its history. The Nasdaq Composite was down 274 points, or 3.9%, at 6,777.

It was the busiest day of trading on the New York Stock Exchange since November 10, 2016, two days after the presidential election.

Traders are still braced for more volatility as they try to figure out if the swings over the past few days are the start of a deeper correction or just a temporary blip in the USA market's nine-year bull run.

Swiss Re opens talks with possible investor
Swiss Re shares were trading at 94.00 Swiss francs ($99.4), up almost 4.2 percent on the news, as of 1030 GMT. According to the newspaper, the Japanese conglomerate can acquire up to a third of Swiss Re's shares.

The Dow recovered some of its early plunge and was down 127 points, or 0.4 percent, at 24,255.

Boeing rose 2.7%, providing the biggest boost to the Dow, while Amazon's 1% rise helped lift the S&P 500. That's less than the 10 percent seen as a correction.

"It means that there are more investors with a negative view on the market in the long term", said Oh Hyun-seok, a market analyst at Samsung Securities. "There was euphoria because there hadn't been a pullback", said Jeffrey Schulze, investment strategist at ClearBridge Investments.

The White House said in a statement that President Trump was focused on "our long-term economic fundamentals, which remain exceptionally strong".

Chicago Federal Reserve President Charles Evans recently said he continues to expect the USA inflation rate to hit the central bank's 2% goal as soon as the end of 2019, adding that the next increase to interest rates could wait until mid-2018. Those include worries about a potential rise in USA inflation or interest rates and budget deficits in Washington. That is big, but it is dwarfed by the lurching moves the market made the last few days. Australia's S&P/ASX 200 was flat at 5,876.30.

Wall Street has failed to stage a lasting rebound from Monday, when fears about the bond market sent the Dow plunging a record 1,175 points.

Also Wednesday, U.S. crude oil added 29 cents to $63.68 a barrel in electronic trading on the New York Mercantile Exchange. The TSX is down 8.2 per cent from its all-time high of 16,412.94, set on January 4. A 3 per cent yield is looked upon by investors as a motive for people to flee the risk of stocks for the relative safety of bonds.

Investors often buy gold when they're anxious about market volatility, but they aren't doing that now. The Nasdaq has lost 9.7 percent of its value in the same span, falling short of the 10 percent threshold that defines a stock correction. Hong Kong's Hang Seng skidded 5.1 percent and South Korea's Kospi declined 1.5 percent. Germany and France fell 2.6% and 2% respectively. Mid-cap stocks on the FTSE 250 fell by 2.3 per cent at the open.

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