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

By JOE McDONALD
BEIJING — Global stock markets sank Friday after the Dow Jones industrials on Wall Street plummeted more than 1,000 points, deepening a week-long sell-off.
Markets followed U.S. stocks lower after the Dow, coming off a record high, entered a “correction” — that is, a 10 percent decline from its latest peak — for the first time in two years.
In Europe, France’s CAC 40 lost 1.2 percent to 5,087, Britain’s FTSE 100 shed 0.7 percent to 7,122 and Germany’s DAX fell 1.2 percent to 12,110. All three had dropped around 2 percent the day before.
Asian markets fell more sharply. The Shanghai Composite Index tumbled 5.5 percent before ending the day down 4 percent at 3,129.85. Tokyo’s Nikkei 225 lost 2.3 percent to 21,382.62 and Hong Kong’s Hang Seng retreated 3.1 percent to 29,507.42.
On Wall Street, futures for the Dow and the Standard & Poor’s 500 were down 0.1 percent and up 0.2 percent, respectively, though the actual market open does not always follow the futures closely in times of volatility.
Financial analysts regard corrections as a normal event but say the latest unusually abrupt plunge might have been triggered by a combination of events that rattled investors. Those include worries about a potential rise in U.S. inflation or interest rates and whether budget disputes in Washington might lead to another government shutdown.
“Markets are down again today, maybe unnerved by fears that the U.S. Senate will not pass a budget bill in time to avoid a U.S. government shutdown,” said Rob Carnell of ING in a report. “With financial markets vulnerable at the moment, this was not great timing for such political brinksmanship.”
Chinese markets fell despite unexpected strongly trade data Thursday. Elsewhere in Asia, Seoul’s Kospi 1.8 percent to 2,363.77 and Sydney’s S&P-ASX 200 lost 0.9 percent to 5,838.00. India’s Sensex retreated 1.1 percent to 34,017.83 and benchmarks in New Zealand, Taiwan and Southeast Asia also fell.
In Europe, markets were unnerved also by the Bank of England’s indication on Thursday that it could raise its key interest rate in coming months due to stronger global economic growth.
U.S. stocks started to tumble last week after the Labor Department said workers’ wages grew at a fast rate in January.
Investors worried rising wages will hurt corporate profits and could signal an increase in inflation that could prompt the Federal Reserve to raise interest rates at a faster pace, putting a brake on the economy.
On Wall Street, many companies that rose the most over the last year have borne the brunt of the selling. Facebook and Boeing have both fallen sharply.
The S&P 500, the benchmark for many index funds, shed 100.66 points, or 3.8 percent, on Thursday to 2,581. Even after this week’s losses, the S&P is up 12.5 percent over the past year. The Nasdaq composite fell 274.82 points, or 3.9 percent, to 6,777.16.
The market, currently in its second-longest bull run of all time, had not seen a correction for two years, an unusually long time. Many market watchers have been predicting a pullback, saying stock prices have become too expensive relative to company earnings.
“We may have seen the worst, but it’s too early to say for sure. However, our view remains that it’s just another correction,” said Shane Oliver of AMP Capital in a report.
Corrections of up to 15 percent “are normal,” said Oliver.
“In the absence of recession, a deep bear market is unlikely,” he said.
American employers are hiring at a healthy pace, with unemployment at a 17-year low of 4.1 percent. The housing industry is solid and manufacturing is rebounding.
Major economies around the world are growing in tandem for the first time since the Great Recession and corporate profits are on the rise. That combination usually carries stocks higher. But stock prices have climbed faster than profits in recent years. Many investors justified that by pointing out that interest rates were low and few alternatives looked like better investments. Fast rising interest rates would make that argument much less persuasive.
In currency markets, the dollar edged up to 108.95 yen from Thursday’s 108.73 yen. The euro dipped to $1.2244 from $1.2248.
Benchmark U.S. crude lost 64 cents to $60.51 per barrel in electronic trading on the New York Mercantile Exchange. It fell 64 cents the previous session to $61.15.
Brent crude, used to price international oils, lost 44 cents to $64.37 in London. It retreated 70 cents on Thursday to $68.81.
Source: Oc Register