The global stock market rout is swinging back to the US on Tuesday, with the Dow Jones industrial average set to open down more than 500 points, or about 2.1%. A loss of that magnitude would put the Dow in correction territory, down 10.8% from its January high.
US stocks were pummeled on Monday, with the Dow falling almost 1,200 points, the biggest single-day point drop in its history. The US’s two other major indexes, the S&P 500, and the Nasdaq, were down 4.1% and 3.8% respectively. The market’s plunge caused the market’s fear gauge, the Cboe Volatility Index or VIX, to spike 84%, the most since record-keeping began in 1980.
Those losses then spread to Asia, where Hong Kong’s Hang Seng plunged 5.12% and Japan’s Nikkei lost 4.73%. The selling then moved to Europe, where Britain’s FTSE (-2.41%), Germany’s DAX (-2.38%), and France’s CAC (-2.6%) are all under pressure.
Although the stock selling began Friday after a stronger-than-expected report on wages sparked worries about a return of inflation to the US, it extended into this week as a combination of computer-driven trading, withdrawals from popular exchange-traded funds, and margin calls on investors who had bought stocks with debt all contributed to selling. At its worst on Monday, the Dow was down 1,500 points.
Margin debt in the stock market hit a record last year, rising to at least $561 billion at the end of October.
Speaking about the big drop on Tuesday morning, Mike van Dulken, head of research at Accendo Markets said:
“Whilst the roots and drivers are sure to be discussed for days, it looks to emanate from a perfect storm of reasons including, but not restricted to, a strong 2017 rally extending into January, low volatility, low interest rates, over-optimism and complacency, over-leverage and financial engineering, all coming to a head as investors react to the possibility of higher/faster interest rates rises with bond yields creeping higher to jeopardize the current market situation.
Business Insider has been covering every angle of the selloff: