Thursday witnessed another bloodbath at the bourses as Dow Jones index nosedived by more than 1000 points. This was largely due to rumors of rise in interest rates that floated around the markets leading to frantic trading by traders. Even the S & P 500 index has witnessed correction of 10%.
Though ups and downs are common in the stock market, the nearly 500 points tumble within 30 minutes of Dow Jones prompted analysts to predicting dark and volatile times ahead. Investors expressed misgivings that rising inflation is forcing central banks to push interest rates upwards thereby hampering borrowings and economic activity.
Analysts argue that a continuation of this steady fall may lead to an “extended bear market”, as the Thursday downfall was the likely result of remarks by Bank of England about a “great rise in interest rates”.
The losses suffered by bourses on Thursday have wiped out all the profits earned last year by Dow and S&P and even technology led Nasdaq lost nearly 4%. According to Alexandra Coupe, associate director investment manager PAAMCO, “Inflation makes stocks an unattractive investment option and rise in interest rates makes bonds more attractive though their returns are lesser.
Thursday’s losses also witnessed fall in U.S. 10-year Treasury bond to 2.83% which is a sign that investors now prefer bonds over stocks as yield from bonds is increasing. Some analysts’ state that economy is not likely to be affected by fickle market movements as some firms witnessed good earnings on Thursday. While Twitter posted early profits others like Yum Brands, Cardinal Health and Tyson Foods and others comprising nearly 80% of listed firms reported good returns.
According to Greg McBride of BankRate.com, “The economy in general is doing well and the volatility is healthy and long overdue to remove excesses”.