After an initial two per cent drop, major Wall Street indexes recovered but did not sustain the rebound. Between the day’s highs and lows, the Dow Jones Industrial Average traded in an almost 1,000-point range.
European equities hit a six-month low, with London and Paris indexes each down more than two per cent. Hong Kong and Tokyo stocks saw steeper drops. Bond prices gained.
US Treasury Secretary Steven Mnuchin played down worries about a selloff in US and global stock markets, saying that recent volatility was not enough to rock market fundamentals.
What began with rising bond yields became a selloff across global equity markets, as investors feared the return of inflation and higher rates that could erode profitability for companies already trading at elevated valuations. Traders are watching how the moves unfold from here — a sustained stock slump has the potential to undermine consumer and business sentiment, crimp borrowing and so start to curtail global growth.
“I think what you have is, this is a correction, not the start of an economic recession,” said Brent Schutte, chief investment strategist of Northwestern Mutual Life Insurance’s wealth-management unit.
“Corrections occur when people are positioned wrongly and have to position for the new environment. They can be sharp, but short.”