Trump calls stock market sell-off 'a correction'

Gladys Abbott
October 11, 2018

US President Donald Trump said yesterday's stock market selloff was in fact a long awaited "correction", and that the Federal Reserve, which has been raising US interest rates, has gone "crazy". "The Fed has gone insane", Trump said. A stock market correction is defined as a fall of at least 10 per cent from the high point of the last 52 weeks.

"I think. the Fed is making a mistake".

The tech sector was hit hardest, with Amazon, Apple, Facebook and Netflix all in the red.

Naeem Aslam, chief market analyst at Think Markets, said: "We have not experienced anything like this since Brexit and if you look at the Nasdaq, it becomes clear that the sell-off was actually triggered by the technology stock".

The Dow Jones industrial average dropped 3.1 percent, or 831 points, to land at 25,599.

"My assumption for the policy rate is that we can achieve our objective of keeping inflation to the 2 percent symmetric objective and the unemployment rate slowly rising back towards its sustainable rate with that stance of funds rate - but if we need more, we'll do more", he said.

Investors are leaning into safer stocks with steady dividends - utilities and consumer staples - and pulling out of the higher-paying, higher-risk stocks as other guideposts of growth, like the communication sector, tumbled.

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The Tel Aviv Stock Exchange was down more than two percent, Shanghai plummeted almost 5% while Tokyo and Hong Kong both shed around 4%, as investors fretted about surging interest rates and the ongoing US-China trade war.

Despite last night's sell-off, the S&P 500 would still need to more than double its losses.

The markets have been on a historic climb - with the Dow and S&P each notching dozens of new highs since 2016 - buoyed by a strong USA economy and solid corporate earnings.

On Friday, federal data showed that the USA jobless rate fell to 3.7 percent in September, its lowest point since 1969.

"As concerns increase over higher interest rates dampening growth, investors are evolving their trading strategies accordingly. The Fed increasing rates to me was a sign that the economy was able to stand on its own two feet".

Stocks have been under pressure since the yield on 10-year US Treasury bonds jumped above three percent last week, a sudden move that raised fears of an overheating economy, speeding inflation and more aggressive Federal Reserve rate hikes. In Paris, shares in Kering fell almost 10 percent, LVMH over seven percent and Hermes around five percent.

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