Global stocks have entered a bear market.
On Wednesday, the MSCI World Index — the global benchmark that covers large- and mid-cap stocks in 23 developed countries — entered a bear market when it fell 20% from its recent peak.
The rout Wednesday began in Asia, where Japan’s Nikkei index closed in a bear market, while Chinese stocks in Hong Kong fell to their lowest level since 2007. The UK’s FTSE 100 closed down 3%, at the lowest level since June 2012.
US stocks started the day deep-red, and the sell-off has intensified through the trading day. Not long after noon, the Dow fell more than 500 points, and with the S&P 500 and Nasdaq, it declined by more than 3%.
To recap, it has been the worst start ever to a calendar year for the stock market. From the first trading day of 2016 to the open Wednesday, the S&P 500 is down about 10%. It touched its lowest level since early 2014.
Here’s the S&P 500:
And the Dow:
Crude oil is also getting hit hard. West Texas Intermediate crude oil, the US benchmark, fell 7% and below $27 a barrel, its lowest level since 2003. Brent crude, the international benchmark, was also down about 3%, following Tuesday’s warning from the International Energy Agency that Iran’s return to exporting could drown the world in oil.
And as crude oil was declining, so too were energy stocks on the S&P 500. The sector was the biggest loser on the benchmark index in early trading with a 1.8% drop.
Meanwhile, investors were buying into the safety of US government debt and gold. The yield on the benchmark 10-year Treasury note, which falls when the note’s price rises, fell below 2% and to its lowest level since October. Gold rallied nearly 2%, or about $19.20 an ounce, to $1,108.40.
Strategists everywhere are fielding panicked questions from clients about whether this means the US economy is headed for a recession. As we detailed over the weekend, many of the pros agree that this is not a likely scenario.
And in commentary on Wednesday, Nuveen Investments’ Bob Doll noted that non-equity financial assets that are typically under strain near a recession, like government bond yields and non-energy fixed income credit, are stable.
“It looks to us as if stocks are pricing in a 50% chance of a recession; we think the odds are actually closer to 25%,” he wrote.
In a note to clients on Wednesday, Deutsche Bank’s Jim Reid suggested that what we’re seeing is an expected repricing of relatively pricey global assets. And for the investor whose focus is further than the intraday market swings, the present volatility is good news because it presents the opportunity for higher returns later.
The economic-data calendar was dominated by the consumer price index for December, which unexpectedly fell 0.1% due to falling energy costs.