The Dow Jones industrial average last night suffered its largest points fall in eight months, adding to fears that stock markets are heading for a sharp correction.
The index closed down 362.59 points at 26,076.89 in New York, with the broader S&P 500 index falling 31.10 points to 2,822.43. Leading indices in Europe and Asia also closed deep in the red.
The Dow Jones index is a measure of the value of 30 of America’s largest public companies and the S&P 500 measures the 500 largest. Investors keep a close eye on the indices because the United States is the world’s largest economy and the health of its companies influences share prices worldwide.
Yesterday’s falls came shortly after senior executives at Goldman Sachs and Bank of America Merrill Lynch, two leading investment banks, had warned that the long-running rally in markets was about to end with a short, sharp correction. Kate Moore, chief equity strategist at Blackrock, the world’s largest money manager, said: “It’s been an amazing start to the year. A pause for a breath feels prudent.”
The FTSE 100 closed down by 83.55 points at 7,587.98. Germany’s Dax shed 126.77 points to end at 13,197.71 and the CAC 40 in France fell 47.8 points to 5,473.78. Earlier, Japan’s Nikkei 225 dropped by 337.37 points to 23,291.97.
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The Dow closed down 177 points on Monday on its worst day since September. It has risen by nearly 8,000 points since President Trump was elected in November 2016.
Yields on benchmark ten-year US government bonds continued to rise, at one point hitting 2.73 per cent, their highest level in nearly four years. Higher yields usually increase borrowing costs for companies, which could slow their growth.
Oil prices fell, with West Texas crude down by 1.2 per cent to $64.36, denting the shares of America’s top two producers: Exxon Mobil was down by 1.4 per cent at $86.78 and Chevron was off by 2.5 per cent at $125.23. Shares of all but one of the 30 Dow companies were down. The fallers were led by United Health, the largest health insurer, which shed 4.4 per cent to $236.65 after Amazon, JP Morgan and Berkshire Hathaway announced that they were setting up their own healthcare company.
The Cboe volatility index, a measure of expected price swings in the S&P 500 over the next 30 days, was up by 8.5 per cent. Last year the index experienced its lowest yearly average on record.
Peter Oppenheimer, chief global equity strategist at Goldman Sachs, said on Monday that a correction was “a high probability in the coming months” and “a buying opportunity”. Bank of America Merrill Lynch warned last week that Wall Street was “very likely” to suffer a sharp fall.