NEW YORK – The roller-coaster Dow Jones Industrial Average prompted the economic blog ZeroHedge.com to mock Obama administration crowing that the stock market high “proved the economic recovery is here.”
The Dow dropped precipitously after a historic intraday high of 17,350 only three weeks ago, losing some 1,500 points.
After an intraday loss of 460 points Wednesday, traders were relieved when a late-day rally mitigated the damage, with the Dow losing 173.45 points on the day to close at 16,141.74.
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According to the Wall Street Journal, traders attributed the day’s wide swing in both stock and bond markets to hedge funds looking to exit money-losing investments.
“Wednesday’s dismal trading had the hallmarks of forced selling by managers who were pressured to unwind risky bets that were losing money fast,” the Journal reported.
On Wednesday, the S&P 500 fell 15.21 points, or 0.8 percent, while the Nasdaq declined 11.85 points, or 0.3 percent, to 4215.32.
The Wall Street Journal further reported that in the current stock market selloff, investors have flocked to government bonds with the yield on the benchmark 10-year Treasury note dropping to 2.091 percent on Wednesday, from 2.206 percent late on Tuesday. It fell briefly below 2 percent for the first time since June 2013, with bond yields falling as bond prices rose.
Despite the marked downturn in the last three weeks, market professionals were unsure whether the current trend reflected a temporary market adjustment or the beginning of a major stock market collapse.
Earlier this month, International Monetary Fund and World Bank officials in semiannual meetings in Washington warned global growth was slowing and central bank loose monetary policies in the European Union and the United States could lead to financial excesses that might prompt a return to a worldwide recession.
WND has reported an end to the Federal Reserve’s Quantitative Easing policy of purchasing U.S. Treasury debt could lead to an increase in interest rates that would prompt a stock market collapse.
The VIX, a widely watched market index generally interpreted as a measure of fear, has spiked recently in both the European Union and the United States. It could mean the days of stock market indexes hitting record highs on a regular basis may be over, at least for a while.
