Volatility returned to markets on Thursday as US indices finished the day sharply lower, plunging them into correction territory.
The Dow Jones industrial average slipped 1,032 points into the red – a 4.2 per cent drop,while the the S&P and Nasdaq both lost more than 3 per cent.
Though US markets had fallen on opening, trading during the morning had been relatively subdued. But by lunchtime heavy trading returned with the markets experiencing sharp swings.
By early afternoon the Dow Jones had tumbled by more than 600 points, while the S&P had shed 2 per cent.
Trading was 50 per cent higher than average.
Activity was similarly volatile on the bond market. Yields on 10-year treasuries again hit the highest level in four years, touching 2.9 per cent at one point though falling back to 2.84 per cent later in the session.
Among the issues that may have spooked investors were suggestions from the Bank of England that it could raise interest rates sooner than expected.
Global stock markets have been hit by concerns about the strength of the US economy, and its impact on inflation, prompting in turn speculation about interest rate hikes.
New figures on Thursday added to the picture of a US economy running at full kilter, with claims for unemployment relief falling to their lower level in nearly 45 years.
The US volatility weighed on European trading on Thursday towards the close of the day, with European shares retreating in the final hour of trading.
The pan-European Stoxx 600 index, a gauge of stocks across Europe, ended lower by 1.8 per cent despite having a relatively strong start to the morning.
Ireland’s benchmark Iseq overall index followed suit and finished 1.58 per cent weaker, with Glenveagh, down 2.5 per cent, and CRH, down 3.06 per cent, among the losers on the index.
Investors are weighing whether the sharp swings are the start of a deeper correction or just a temporary bump in the nine-year bull market, spurred by concerns over rising interest rates and bond yields.
“While volatility in the markets has eased over the last couple of days, it has remained at very high levels – probably a sign of the ongoing nervousness among investors which may leave markets vulnerable to further declines,” Craig Erlam, senior market analyst at Oanda, said in a note.
Nine of the 11 major S&P sectors were lower, with the industrials index’s 0.57 per cent fall in early trade leading the decliners.
Dallas Fed president Robert Kaplan said on Thursday the central bank could hike rates three times this year and the recent market volatility in itself was not enough to change his base scenario. – Additional reporting: Reuters