Stocks in the U.S. have fallen to their lowest closing position since September, with the Dow Jones Industrial Average falling more than 370 points.
Bloomberg Business suggests that small caps are entering a bear market. Benchmarks are tumbling sending shock waves throughout the global markets.
“Traders said stock declines Wednesday were fueled by fresh concerns that a U.S. economic expansion entering its seventh year is vulnerable to softening growth overseas, particularly in China and emerging economies.” And, in addition, as a result of uncertainty, “Investors have begun to sell stocks broadly,” writes The Wall Street Journal.
Jumping out of volatile commodities seems to signal a flight to safety on behalf of the investors who worry about the current market development.
“There’s big-time negative sentiment in the market right now. There was no specific news to send this market down. Without enough news to make it go higher, and with negative sentiment, we started selling off.
“We have earnings coming up, and they’ll be pivotal for getting us out of this downtrend,” Mark Kepner, an equity trader at Themis Trading LLC, told Bloomberg Business.
Partially responsible for this year’s slides is “robotic selling by quantitative investors who were forced to rebalance their funds when stocks and bonds both fell in January,” according to Bloomberg Business.
According to a Mother Jones article: “high-speed trading algorithms are now responsible for more than half of U.S. trading.”
As the following Tweet shows, not all people are comfortable with high-speed computer generated trading:
Even European stocks feel the shockwaves created by the volatility of commodity-related stocks. The oil price dip left European stocks sliding, and bestowed the “biggest drop in three months” on Wall Street, according to Financial Times.
Experts claim that the overall volatility of the markets at present is the cause for the bearish-mood among equity investors.
The flight of investors has caused huge dips in the benchmark indexes like S&P500, NASDAQ, and the ASX. However, treasuries have benefited greatly as “investors flocked to a $2.1 billion auction of 10-year notes at the lowest yield since October amid concern that global growth is slowing.
“A class of investors that includes foreign central banks and mutual funds bought 71 percent of the sale, the second-highest amount on record,” according to Bloomberg Business.
Much of the tumble on the world markets is attributed to the drops on Wall Street, while much of the dips on Wall Street are attributed to the large trading-institution’s sentiment toward the plunging oil prices and China.
China’s response to the market anxiety seems to expose weakness within its political system, writes The Economist.
— The Economist (@TheEconomist) January 14, 2016
China has been a driving force for global economical growth over the past years. However, it’s current economical slow down and currency situation has been creating further back-wind for the emerging bearish-behavior of investors on the stock markets.
Art Hogan, chief market strategist at Wunderlich Securities told CNN Money: “The biggest concern that we have coming into the next year is what China is doing with their currency.”
The U.S. benchmark-index DOW dropped 365 points due to fears of further oil price plummets, and due to the uncertainty about the direction that China’s currency devaluation is taking.
As of 2016 China’s yuan has lost 1.2 percent of its value against the dollar. Even though the Chinese currency is performing better than other currencies, every loss the yuan takes forces other currencies to devalue too, which is the main point of concern for those considering the future health of the global economy.
It’s seems the best advice for investors would be not to panic, and take a step back to consider the most rational approach, according to the bigger picture of things at present.