Six things to understand about the turmoil in global financial markets
Markets are struggling to rebound from Monday’s sharp sell off, when the Dow Jones industrial average fell 4.6 per cent, its biggest one-day percentage decline since 2011, leaving many wondering what triggered the drop and whether worse is to come. Here’s a look at what’s going on.
1. Why the sell off? Kash Pashootan, CEO at First Avenue Investment Counsel Inc., says it’s a fool’s game to try and explain why a correction took place, but points out there is no arguing that some pullback was overdue after nine years of positive returns for U.S. markets.
Corrections are seen as entirely normal during bull markets, and even helpful in removing speculative froth and allowing new investors to buy into the market at lower prices. The last time the market had a correction was two years ago, which is seen as an uncommonly long time.
2. Why now? It certainly wasn’t because of bad job numbers or other fundamentals, said Benjamin Reitzes at BMO Capital Markets in a note, pointing out that Monday’s only data point showed that the U.S. non-manufacturing sector started the year in robust health. Many point to the strength of the U.S. economy, including Friday’s positive job numbers that showed wages growing at the fastest rate in eight years, as a potential cause. The positive indicators have increased speculation that the U.S. Federal Reserve may raise interest rates faster than expected to cool inflation.