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What it means that stocks are in a 'correction'

09 February 2018

Day two brought the big gain, but only after a day of volatility that included the Dow swinging 1,167 points from its low to its high.

Other major US stock indexes also rebounded Tuesday, with the S&P 500 finishing up 46 points, or 1.7 percent, and the Nasdaq up 148 points, or 2.1 percent.

By early afternoon the Dow Jones had tumbled by more than 600 points, while the S&P had shed 2 per cent.

Trading has been turbulent all day.

The Dow plummeted more than 1,000 points - the second time this week it fell more than four figures - confirming many analysts' predictions stocks would remain volatile as the market tries to rebound from a historic, ongoing sell-off.

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The S&P 500 index showed 3 new 52-week highs and 2 new lows, while the Nasdaq recorded 26 new highs and 33 new lows.

Benchmark 10-year notes US10YT=RR last fell 3/32 in price to yield 2.8054 percent, from 2.794 percent late on Monday. As such, some experts are now reminding investors who may have forgotten what a market decline feels like. That's less true for China, whose financial markets are more cloistered from worldwide investors. "Since 1929, pullbacks of 5 percent have occurred after 92 days, on average". As a result, the biggest losses went to high-dividend companies such as utility and real estate companies whose stocks become less appealing than bonds to investors seeking income. The fear is that Treasury yields will rise to levels that make stocks less attractive and force the Federal Reserve to fight inflation by aggressively raising interest rates. Higher rates act like a brake on the economy by slowing down borrowing and lending. "Despite violent moves in the last couple days in the market, fundamentals in the economy are very strong and it's not just the US, it's throughout the global economy", Alicia Levine, head of global investment strategy at BNY Mellon Investment Management in NY.

"A lot of people have been forced to put on positions that will need to be either wound down or rolled forward", Cherry said. Short-term corrections are also viewed by technical analysts to be inevitable as stocks trend upwards in a bull market.

"This increased volatility had been one that the market was anticipating at the start of the year, but certainly took its time to arrive and may retain a spot in the market after this week's tumultuous turn".

On Monday, the Dow plummet almost 1,600 points briefly in late trading, marking the worst intraday fall in market history. Several Dow members lost more than five percent, including American Express and Home Depot. Copper lost 1.30% to $7,075.85 a tonne. Brent crude, the global standard for oil prices, gave up 70 cents, or 1.1 percent, to $64.81 per barrel in London.

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USA crude fell 2.08 percent to US$62.07 per barrel and Brent was last at $66.12, down 1.11 percent on the day. Emerging market stocks lost 2.74%, but the iShares MSCI emerging markets exchange-traded fund jumped 3.3%.

The downturn may have been accelerated by the widespread use of exotic, leveraged securities that lose value when market volatility spikes, as it has in recent days.

The April gold bullion contract was up $4.40 (U.S.) to $1,319.00 an ounce.

Few big companies emerged unscathed, with Dow giants Boeing and Caterpillar losing around five percent, around the same range as tech titans Amazon and Facebook. Germany's DAX declined 2.6 percent.

In currency trading, the dollar fell to 109.02 yen from 109.54 yen late Tuesday. Looking ahead a strong reading from this morning's German industrial production data could see the euro head towards $1.24 before moving towards resistance at $1.2445.

Elsewhere, the Nasdaq 100 closed down 3.77%, and the S&P 500 closed 4.08%.

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What it means that stocks are in a 'correction'