US market bloodbath washes over Australia
Analysts are still questioning how far global share markets may drop, or indeed if they will continue to fall, after two days of heavy losses on Wall Street sparked plunges across global markets.
The Dow Jones Industrial Average lost more than 1,100 points in Monday's session, a 4.6 per cent dive that compounded a 666 point descent suffered on Friday and sparked a rout on global markets.
Australian shares shed $66 billion on Tuesday, with the benchmark S&P/ASX200 suffering its worst daily performance since September, 2015, when fears of a collapse in global mining companies shook markets.
Markets across Asia also fell on Tuesday, with Japan's Nikkei index dropping almost five per cent and Hong Kong down more than four per cent.
The question for equity markets now is how deep the hole will turn out to be.
US Dow Jones futures were positive early on Tuesday local time but turned negative during the afternoon and at 1729 AEDT Dow futures were down 1.9 per cent, having earlier been down 2.2 per cent.
Patersons economic strategist Tony Farnham said investors in the US were grappling with several issues, including the returns they could get from relatively risk-free Treasury bonds, the yields of which are rising, compared to those they can get from riskier assets such as stocks.
Wall Street also has been affected by stock-specific stories, such as US bank Wells Fargo tumbling 10 per cent after being stopped from growing its asset book until it gets various compliance issues in order, he said.
Some recent profit results from the likes of tech giants Google and Apple have also failed to inspire investors.
Furthermore, there is continued debate over whether the US Federal Reserve is going to increase interest rates more than three times this year, as strengthening jobs and wages data point to a risk of increased inflation.
"These sorts of things tend to roil markets if they're more aggressive than what people are expecting," Mr Farnham said.
"That's washed across to us."
Mr Farnham said that although Wall Street had pulled back in recent sessions, the US economy was still strengthening and the Trump administration's recent tax cuts should provide a further boost.
"It's not the (US) economy pushing the stock market down - it's the expectations of what (the US Federal Reserve) does, which is a key factor at play," Mr Farnham said.
He reminds investors that the nature of share markets is to go up and down, and suggests that investors holding quality stocks try to ride out the volatility.
"I honestly don't know where it will go in terms of a fall," Mr Farnham said.
"But, from an Australian context, the major banks, major resources and major retailers - the big end of town - will be there at the end of all this, barring some absolutely catastrophic stock-specific story."
Mr Farnham said investors' attention will likely turn toward the local company reporting season on Wednesday, when market heavyweight Commonwealth Bank announces its half-year results.
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