The reason for the fall of Dow Jones on Wall Street

         

The long and quiet record journey on Wall Street is over. The setback in the stock market that experts said should have happened some time ago has finally arrived.

Investors' fears about a rise in interest rates grew to become rapid computer-generated sales on Monday that wiped out all market gains for the year. At one point, the Dow Jones industrial average fell 1,000 points in less than an hour, and closed its worst day in more than six years. The Standard & Poor's 500 is now almost 8% below its record high, established just over a week ago.

Market professionals warn that sales could continue for a little longer. However, many are quick to say that they do not see a recession on the horizon, and that they hope that the strengthening of the global economy and healthy corporate profits will help share prices to recover.

"The reason for the increase in rates is that the economy is more solid," said Ernie Cecilia, investment director at Bryn Mawr Trust. "The reasons are positive. It is not that something like the 2008 or the financial apocalypse is coming. "

What triggered the sales streak came in the last days of last week, when a government report showed that salaries across the country rose relatively fast last month. Although that is good for the workers, the brokers took it as a sign that inflation could rise soon, which could force the Federal Reserve to raise interest rates more quickly than expected. The increase in rates not only makes it difficult for people and companies to apply for loans, but it can also cause investors to exit the stock market and take refuge in the bonds.

The sales streak on Monday was so sharp that some observers blamed the automated transaction systems, which are programmed to buy and sell based on several variables, and could have activated their selling mechanisms after the first wobble in the prices of the stock after an unusually quiet advance.

That could mean even more volatility in the coming days, something that investors have not had to face in more than a year of a placid journey with record profits. Before Monday, the S & P 500 index had gone through a record period of time, approximately 400 business days, without a drop of even 5%.

Monday was also the first day in office of the new Federal Reserve chairman, Jerome Powell, and investors are wondering how much he will adhere to the low interest rate policies established by his predecessor, Janet Yellen.

Markets across the world suffered setbacks on Tuesday following a cascade of sales on Wall Street, raising fears that a potentially beneficial pullback from recent record highs could turn into a shrinking market.

"If investors look at the growth of underlying earnings and the fundamentals of the global economy, there are reasons for optimism," said Neil Wilson, a market analyst at ETX Capital. "However, once this stampede begins it is difficult to stop it."  One of the most affected indicators on Tuesday was the Nikkei 225 index of Tokyo, which closed 4.7% lower at 21,610.24, after recording losses during the day of up to 7%.

All other Asian stocks fell, including the Shanghai Composite Index, which closed 3.4% below, at 3,370.65, and Hong Kong's Hang Seng, which closed with losses of 5.1%, at 30,595.42. The Australian S & P ASX 200 benchmark index fell 3.2% to 5,833.30, while South Korea's Kospi declined 1.5% to 2,453.31.  The trend remained in the first hours of trading in the European places, although there were some signs of recovery after the first losses in the morning.

The FTSE 100 of British titles outstanding, lost 1.8%, to 7.206, while the CAC 40 in France fell 1.4%, to 5.212, and the German DAX traded with losses of 1.9% to 12.441.

Although many parks were near where they started the year, the losses represent a sudden change of direction after long periods of profit, something that experts have predicted for some time.  Stephen Schwarzman, president and CEO of Blackstone, warned recently in the World Economic Forum of a possible "adjustment" in the markets.  It is common to refer to a decrease of 10% starting from a peak as a "correction", while a contractionary market is defined as a decrease of around 20% in the indexes.

The S & P 500, for example, has lost 7.8% since its last record high on January 26.  "It seems that the only hope for the markets at this time is for investors to suddenly decide that sales have been exceeded a bit," said Connor Campbell, financial analyst at Spreadex.

The trigger for the streak of sales were the statistics of employment last Friday in the United States, which showed an increase in wages in the country. For many traders, that was a sign that the Fed will have to raise the pace of its rate hikes, since higher wages can boost inflation.

The opening of Wall Street on Tuesday could be decisive, and futures markets pointed to slight improvements, with increases of 0.6% in the futures of the Dow and 1.2% in the futures of the S & P.

The Dow Jones closed on Monday with falls of 4.6% to 24,345.75, while the S & P 500 fell 4.1% to 2,648.94. No such declines have been recorded since August 2011, a moment of uneasiness among investors over the European debt crisis and the stagnation in Washington over the debt ceiling that caused a downgrade in the US debt rating.

Even so, while stock markets took the hit, other financial assets became more attractive to investors. Gold, for example, rose 0.5% to $ 1,343 an ounce.

The US dollar remained quite strong despite the massive sales, which at one point subtracted 1,597 points from the Dow Jones. The euro rose 0.4%, while the dollar rose 0.1% against the yen to 109.22 yen.