According to an estimate from Deutsche Bank, the big sell-off on world markets has erased about $US5 trillion in value from global stock and bond markets so far in October alone.
The bank said that shouldn’t be severe enough to affect the economy, for now- it pointed out that the $US5 trillion estimate is a third of the $US15 trillion global markets have added in value since the start of 2017.
“Academic studies of the wealth effect find that households and companies don’t react to short-term fluctuations in their wealth but instead react to a moving average of where their wealth levels are,” said Torsten Slok, chief international economist at Deutsche Bank Securities, said in a note to clients on Friday when we saw billions more wiped off valuations as markets in Asia, Europe, and the US again sold off.
US shares fell 3.9%, Eurozone shares fell 2.6%, Japanese shares lost 6% and Australian shares fell 4.6%. Chinese shares rose 1.2% though thanks to stimulus measures which stopped a couple of selling routs from developing in the week.
The savage global stock markets sell-off means October may end up as the worst month for MSCI’s all-country index in at least seven years the week – with losses since January’s peaks now nearing 15%.
Friday night saw Wall Street stocks ended sharply lower but off session lows at the end of a volatile week that saw the S&P 500 and Dow turn lower for 2018.
The Dow fell 296.24 points, or 1.2%, to 24,688.31, the S&P 500 lost 46.88 points, or 1.73%, to 2,658.69 the Nasdaq Composite shed 151.12 points, or 2.07%, to 7,167.21.
That left the S&P 500 down 3.9% for the week and the Dow off 3%. For the year, the S&P 500 is off 0.6%, while the Dow is down 0.1%. The Nasdaq lost 3.8% over the week.
The tech-heavy index entered correction territory earlier this week. Disappointing results from Amazon and Google’s parent Alphabet on Thursday after trading closed helped set the tone for Friday’s sell-off.
Bond yields fell on safe-haven demand (3.077% for the US 10 year treasury bond and a three week low). It was 3.261 three weeks ago, the highest for seven years. Iron ore prices rose, oil and metals fell (see separate stories).
The Aussie dollar ended the week around 70.90 US cents.
The AMP’s Dr Shane Oliver pointed out in a weekend note that “Shares are technically oversold again and so may see a bounce, but a circa 20% top to bottom fall in share markets as occurred through the 2015-16 global growth scare is possible and this would likely require some sort of global policy reaction to turnaround, eg the Fed hitting the pause button and the ECB extending QE. Of course, China is already easing.”
He pointed out that investors have to understand that “Corrections are normal – global and Australian shares saw multiple pullbacks ranging from 7% to 20% since 2012.”
