London shares follow global markets with new falls

Erika Holt
February 7, 2018

Shares across Asia have taken a heavy beating overnight after the NY stock market suffered its biggest drop in six-and-a-half years.

But in percentage terms, the declines of Friday and Monday are nowhere near the worst. Much of what has been driving stocks to new highs regularly in the past year has been corporate profits, which have been rising consistently, often faster than expected. The Dow is up 24 per cent over that time, the S&P 500 18 per cent.

Apple climbed 4.2 percent, while Microsoft and Amazon gained 3.8 percent each.

More recently, Black Monday - known as Black Tuesday in the United Kingdom because of time differences - references the global markets crash on October 19, 1987.

CA Technologies lost 74 cents after declining $1.41 to just below $34, while Henry Schein was re4bounded, gaining 44 cents after losing $2.55 and Canon edged up 18 cents after dropping $2.01 or a little more than 5 percent to $37.44.

The early recovery in United States markets gives some credence to those who believe the recent falls were a much needed market correction rather than the precursor to a wider sell-off.

In the wake of the biggest point-drop in Dow Jones history, investors are keeping a close eye on the stock market Tuesday.

Many stock market investors appear to have been betting on a return to a so-called Goldilocks economy, with rising growth and low inflation.

Some analysts have cautioned the decrease in an unusually strong market could merely be a correction, which considers any drop below 10% healthy.

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The highest bond yields in years are making bonds more appealing to investors compared with stocks. "I know it's been a while since we had a day like today, but nothing has really changed from a fundamental standpoint".

The catalyst for the deep losses over the past two trading sessions was federal governments employment report Friday, which saw the strongest rise in wages in years, and spurred fears that the Federal Reserve and other central banks would raise interest rates faster than expected to head off inflation. Higher rates act like a brake on the economy by slowing down borrowing and lending. While this can be unnerving for investors, we see a robust economic and corporate environment that should continue to support equities.

While they can be scary, market pullbacks prevent stocks from overheating and give investors who were stuck on the sideline a chance to get in.

"The market has had an incredible run", Michael O'Rourke - the chief market strategist at Greenwich, Connecticut-based JonesTrading - said. Gold fell $7, or 0.5 percent, to $1,329.50 an ounce and silver dipped 9 cents, or 0.5 percent, to $16.58 an ounce.

Sharp drops on Friday and Monday erased the gains the Dow and S&P 500 made this year.

In Europe, Germany's DAX fell 2.3 percent and the CAC 40 in France lost 2.3 percent Tuesday. Nasdaq 100 e-minis were down 25.75 points, or 0.4 percent, on volume of 207,522 contracts.

Since the Brexit vote its fortunes had been closely linked to the value of the pound - with falls in sterling versus the dollar boosting its constituent companies with high dollar earnings.

Japan's benchmark Nikkei 225 tumbled 2.6 percent and the South Korean Kospi shed 1.3 percent.

A key jobs report on Friday - showing strong growth in the U.S. labour market - appears to have been the catalyst for the rally to come to a halt, at a time when some observers have suggested a so-called correction might be due.

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