While no fundamental reason has been stated for the decline, there has been rumours about the return of high yields and inflation across the globe
US stocks plunged in highly volatile trading on Monday, with both the S&P 500 and Dow Industrials indices slumping more than 4 percent, as the Dow notched its biggest intraday decline in history with a nearly 1,600-point drop and Wall Street erased its gains for the year.
The declines for the benchmark S&P 500 index and the Dow Jones Industrial Average were the biggest single-day percentage drops since August 2011, a period of stock-market volatility marked by the downgrade of the United States’ credit rating and the eurozone debt crisis.
While no fundamental reason has been stated for the decline, there has been rumours about the return of high yields and inflation across the globe.
There are various possible reasons for the sell off on Monday. First, the slide in the US market wasn't caused by anything fundamental. Two, dealers say some computer-programmed trading sent Wall Street into a bizarre tizzy. Three, fear brewed over a number of issues, with the biggest being trepidation about rising interest rates even though US government bond yields actually were lower on the day. Fourth, some dealers blamed the US Fed for the market breakdown, or at least the mentality that led to the selling climate.
Here's what the experts are saying:
>Michael Every of Rabobank
In an interview to CNBC-TV18, Every said that a few commentators have been correctly saying for a very long period of time that the US market in particular and global markets in general are increasingly trending towards seeing passive investing by exchange traded funds and basically allocating towards the lowest volatility assets.
He further said that in a market when everyone is passively tracking a few active participants and when a few active participants sell aggressively on the back of one number on Friday, everybody else has to sell off.
> Seth Freeman CEO & Chief Investment Officer of EM Capital Management LLC
Freeman said that no one knows the exact reason for the fall, however, the fall has been quite steep.
Freeman said that we might see a higher rate increase (by US Fed) sooner than expected whether that means four increases or three increases, I am not sure.
"One of the problem I think is that the effects of the tax cuts is very fun-loading, evidenvce is that there are articles talking about the US Budget pushing their debt limit sooner than it was thought. The near-time impact may be felt in a higher deficit," Freeman said.
> Arvind Sanger of Geosphere Capital Management
Sanger said that India itself is facing an inflation issue. According to him, Reserve Bank of India (RBI) likely to be much more hawkish.
Sanger pointed out that there are negative factor such as capital gains which are slightly more deeper in concern. But he thinks with the growth, we will hopefully be getting back on track.
> Geoff Dennis Head-Global Emerging Market Strategy at UBS
According to Dennis, Chicago Board Options Exchange Volatility Index (CBOE VIX) may have reached its peak, US economy is still very strong.
"The whole thing beagn with the disappointing or the strength of wages, earnings and the shody payrolls, that led a sell of bonds that gave you a bad intraday," Dennis said.
> Bob Doll of Nuveen AMC
"US economy is doing quite well. The shoddy basis point rise since January is just too fast for the equity market to handle it. The yeilds have come back to some degree but the reactions are still going on," Doll said.
Doll said that the market has seen reactions in the past and assured that once the market finds a bottom, it will go up if the economy is doing well. Doll added that we would not make any changes to US’ rate increase expectations.
Following the sell-off, asian indexes also tumbled early on Tuesday, mirroring massive losses seen stateside in the last session when the Dow fell more than 1,100 points and the S&P saw its worst day in six years.
Japan's Nikkei 225 was down 4.95 percent as stocks across sectors pulled back. Automakers, financials and technology names were lower in the morning, with Toyota down 3.77 percent.Among other blue chips, SoftBank Group tumbled 5 percent and Fanuc Manufacturing lost 5.36 percent. Fast Retailing sank 5.16 percent.