The world’s major stock markets have greeted the start of February with significant losses of value. The rout (nothing like a strongly emotive word in the mornings!) started in the USA where the Dow Jones fell by1175 on Monday. The drop is the largest one-day fall ever and has erased gains made by the Dow so far this year. The Dow started the year at 24719 and closed on Monday at 24346 on the back of the record 4.6% fall. In cash terms, the market value of the Dow Jones has fallen by $1 trillion since the start of January.
The broader based S&P 500 index also fell sharply, experiencing its worst one day fall since 2015, wiping out all its 2018 gains. It ended the day down by 4.1% whilst the Nasdaq fell by 3.7%.
The sell-off has affected all of the major markets around the world with Japan’s Nikkei recovering from the worst points loss in a day since 1990, at one stage, to close down by 4.7%. The Honk-Kong based Hang-Seng saw losses of 4.5% and the Kospi in South Korea shed 2.6%. Australia’s S&P/ASX 200 index fell by 3.2% on the day.
The FTSE-100 had its poorest day’s trading since the announcement of a snap election last year, adding a 1.3% fall to a run of five consecutive days of losses, its worst run since November, it closed at 7345.
The fall in US markets have greeted the incoming Federal Reserve Chairman Jerome Powell on his first day in charge. Policy at the Fed, going forward, may be key to the current stock market jitters. Some analysts believe that with US wages increasing by 2.9% against a backdrop of near full employment, inflationary pressure will rise. Conventional wisdom suggests that interest rates would be raised to choke off inflation, making money more expensive to borrow and so reducing (potentially) business expansion and profitability – hence the sell-off. However, US interest rates are still very low in historic terms and an alternative explanation could simply be that some investors are taking profits from US markets which had hit record highs and were regarded in certain quarters as being over-valued.