Trump bubble bursts

Wall Street stocks plunged in chaotic trading on Tuesday with the Dow Jones Industrial Average witnessing its steepest ever one-day point drop, wiping 4.6 per cent off the value of America's 30 largest companies.

The rout in US markets continued to ripple around the globe – Japanese shares were down about 7 percent at one point before ending 4.7 percent lower, while markets in Hong Kong and Taiwan closed down about 5 percent. An index of Chinese companies listed in Hong Kong fell nearly 6 percent. The selling was broad, hitting companies of all sizes across many industries.

The Sensex, too, plunged nearly 1,275 points before recouping and closing 561 points lower at 34,195.

The trigger for the global selloff was job data in US, which showed American wages increasing at the fastest pace since 2009.

This has raised alarm about higher inflation and with it potentially higher interest rates.

In anticipation of faster-than-expected rate hike from the Federal Reserve - the US central bank – bond yields have spiked in the US, undermining the attraction of equities. Higher bond yields are also seen as negative for emerging markets and commodity prices.

There’s no doubt that the 7.8 percent drop since January 26 is substantial; it represents nearly $2 trillion of paper wealth.

Despite the warning signals flashing for global stock markets, economists said the drop in equity prices may be a short-term trend if the world economy can continue to expand without generating too much inflation and if central banks do not hike interest rates more than anticipated.

Responding to the market sell-off, the White House said Trump was focused on the long-term health of the US economy, claiming the fundamentals were "exceptionally strong."

Since coming to office, Trump has repeatedly touted dayto-day stock market increases as evidence his administration is succeeding. The White House had dubbed it the "Trump bump."

“Since last autumn, investors had been betting on the ‘Goldilocks’ economy - solid economic expansion, improving corporate earnings and stable inflation. But the tide seems to have changed,” Reuters cited Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities.

This downward swing in markets may be the kind of occasional stumble that every bull market experiences, or could be the beginning of the end of a market rally that has been going on for an awful long time, said a columnist in the New York Times.