There seems no single reason
for the sharp sell off. A few major companies had disappointing earnings but overall earnings have been relatively good. Whole Foods Market and energy giant Exxon Mobil
declined after results that disappointed investors. Argentine's apparent debt default may be a factor and also worries about conflicts in the Ukraine and Middle East. Ironically one factor may be an improved economic outlook
for economic growth in the US. Investors may fear that this will mean that the Federal Reserve will cut back on its expansionary monetary policy of quantitative easing even more quickly than it is doing at present. Many analysts have been expecting a correction for some time.
of Charles Schwab said:
“I think it’s healthy and normal at this stage of the monetary cycle. After the run-up in the market we’ve had until now, I’d expect that we’d have a real correction. Whether this is the beginning of one, I don’t know, but I think it would be very healthy to have one. And a decline like this one? It’s O.K. to have it.”
The Dow Jones index closed at 16,563, a fall of 317.06 on the day or 1.88 percent putting it into negative territory for the year. However, the NASDAQ, which fell by an even larger percentage to 4,369.77 with a drop of 93.13 points or 2.09 percent, was still well into positive territory for the year at a 4.63 per cent gain. The S&P index was also still up 4.45 per cent for the year even though it fell 39.40 points, a two percent loss to close at 1,930.67.
The VIX or Volatility Index, sometimes called the fear index, rose from 13.33 on Wednesday to 16.95 on Thursday. However, even this level is just average over a longer term. The market has been on an upswing since March 2009 without a significant correction since 2012. James Paulsen,
the chief investment strategist at Wells Capital Management said
:“You can definitely say that we are long overdue for a drop like the one we had, What may be happening is that what’s good news on Main Street is no longer good news on Wall Street, that we’re having a divergence, and the market has to get used to that.”
Paulsen was referring to the announcement that US GDP had risen by 4 per cent in the second quarter of 2014, but this may mean as mentioned earlier that there could be an earlier end to monetary stimulation measures such as bond purchases.
The US was not the only area
where stocks fell:
"All major European markets closed in deep red. The Stoxx Europe 600 index XX:SXXP -1.31% lost 1.3% to end at 335.99, marking the lowest close since late April. For July, the benchmark dropped 1.7%, the biggest monthly slide since January.
Germany’s DAX 30 index DX:DAX -1.94% slumped 1.9% to 9,407.48, for a 4.3% decline for July. France’s CAC 40 index FR:PX1 -1.53% gave up 1.5%, closing 4% lower on the month.
The U.K.’s FTSE 100 index UK:UKX -0.64% dropped 0.6% to 6,730.11, erasing its monthly gain to end 0.2% lower in July. "
The MSCI All-Country World Index tumbled 1.5 percent. This was its worst loss
in more than six months.