Asian shares tumble after Dow has worst day since 2011
TOKYO — Shares tumbled in Asia on Tuesday after a wild day for U.S. markets that resulted in the biggest drop in the Dow Jones industrial average in six and a half years.
Japan's Nikkei 225 index skidded 7.1 percent to 21,087.71 by early Tuesday afternoon but was trading down 6.6 percent a bit later. Hong Kong's Hang Seng index lost 5.0 percent to 30,628.22 and Australia's benchmark S&P ASX 200 slid 3.4 percent to 5,820.20. South Korea's Kospi declined 2.4 percent to 2,431.88 and the Shanghai Composite index was off 2.2 percent at 3,412.55.
All other regional markets were lower.
Japan's Nikkei stock index falls more than 1,500 points — worst point drop since 1990 https://t.co/9jkjxj4auR— CNBC (@CNBC) February 6, 2018
The losses in Asia tracked the Dow's 1,175 point plunge on Monday, its worst point drop of all time and its worst percentage decline since August 2011.
Two days of steep losses have erased the U.S. market's gains from the start of this year, ending a spate of record-setting calm for stocks.
Market pros have been predicting a pullback for some time, noting that declines of 10 percent or more are common during bull markets. There hasn't been one in two years, and by many measures stocks had been looking expensive.
The same is true of many global markets, where investors have been bracing for a correction while hoping not to see one.
"There would be few places to hide from the risk-off atmosphere that is expected to extend its stay in Asian markets today in a significant manner," Jingyi Pan of IG said in a commentary. "This is fear rolling over itself," she said.
Japan's Nikkei Stock Average plunges 1,500 points, or 6.7%, its biggest intraday point drop since 1990. Follow along for our live coverage and real-time analysis: https://t.co/IpliWTmoTJ— The Wall Street Journal (@WSJ) February 6, 2018
Panic in other markets can send investors racing for the "safe haven" of Japanese yen holdings, she noted. That is painful for Japanese and other regional export manufacturers, whose competitiveness is hurt by stronger currencies that push their prices relatively higher.
Japanese officials sought to downplay the losses.
"The economy has had record high corporate earnings and improving wages and labor conditions. Consumer spending is also recovering and so the Japanese economy is stable," said Toshimitsu Motegi, the economy minister. "As for market movements, I will watch closely for any impact on the economy."
The U.S. dollar weakened to 108.77 yen, down from 109.12 on Monday. The euro edged lower to $1.2365 from $1.2369.
After the market's big gains in 2017 and early 2018, stocks were overdue for a drop, said David Kelly, the chief global strategist for JPMorgan Asset Management.
"It's like a kid at a child's party who, after an afternoon of cake and ice cream, eats one more cookie and that puts them over the edge," said David Kelly, the chief global strategist for JPMorgan Asset Management.
During Monday's roller-coaster trading on Wall Street, at its lowest ebb, the Dow was down 1,597 points from Friday's close. That came during a 15-minute stretch where the 30-stock index lost 700 points and then gained them back.
$DJIA and $SPX post losses & now Asian markets have been awake for a while and it's not looking great. Nikkei, SHCOMP, Nifty 50, KOSPI, SET, Hang Seng, and ASX 200 all in the red. pic.twitter.com/89AuZS5zGr— Ankit Panda (@nktpnd) February 6, 2018
Banks fared the worst as bond yields and interest rates nosedived. Health care, technology and industrial companies took outsize losses and energy companies sank with oil prices.
The Dow finished down 4.6 percent at 24,345.75. The Standard & Poor's 500 index, the benchmark most professional investors and many index funds use, sank 4.1 percent, to 2,648.94. That was its biggest loss since August 2011, when stocks were reeling as investors fretted over European government debt and the U.S. credit rating was downgraded after the debt ceiling impasse.
The Nasdaq composite fell 3.8 percent to 6,967.53. The Russell 2000 index of smaller-company stocks sank 3.6 percent to 1,491.09.
The slump began Friday on concerns that creeping signs of higher inflation and interest rates could derail the U.S. economy and the market's record-setting rally if the Federal Reserve raises interest rates more quickly, making it more expensive for people and businesses to borrow money.
The S&P 500 has fallen 7.8 percent since it set its latest record high on Jan. 26.
Monday's drop was bad, but there were worse days during the financial crisis. The Dow's 777-point plunge in September 2008 was equivalent to 7 percent, far bigger than Monday's decline.
A drop of 10 percent from a peak is referred to on Wall Street as a "correction." The last such drop came in early 2016, when oil prices were plunging as investors worried about a drop in global growth, which could have sharply reduced demand. U.S. crude hit a low of about $26 a barrel in February of that year.
On Tuesday, oil prices were steady. Benchmark U.S. crude fell 71 cents to $63.44 per barrel in electronic trading on the New York Mercantile Exchange. On Monday, it gave up $1.30 to $64.15 per barrel. Brent crude, which is used to price international oils, shed 73 cents to $66.89 per barrel.
Now, the highest bond yields in years are making bonds more appealing to investors compared with stocks. Bond prices jumped after a steep decline on Friday.
On Tuesday, the yield on the 10-year Treasury slipped to 2.68 percent from 2.84 percent. Lower interest rates hurt banks because they cannot charge as much money for mortgages and other types of loans.