The ASX Got Smashed By A Brutal Wall Street

Getty: Mark Metcalfe

Australian stocks closed down today, sucked into fears on Wall Street that the world is about to shift to higher interest rates.

The S&P/ASX 200 lost 1.36% or 76.51 points to 5,556.40.

In America fears that the Federal Reserve would lift interest rates pushed the S&P 500 down 2% to 1,930.67 and the Dow Jones industrial average 1.88% to 317.06 points.

US traders blamed the big sell-off on the 0.7% jump in the employment cost index (ECI) in the second quarter.

Michael McCarthy, Chief Market Strategist of CMC Markets, says local investors hit the panic button.

“Every sector fell and volatility spiked as the overnight sea change washed over the local bourse. While an Argentinian bond default captured the headlines, stronger than expected US employment costs are the main culprit,” he says

“They suggest underemployment is diminishing and the inflation dragon is stirring, with the clear implication of higher interest rates sooner spooking investors.”

Despite a lower Australian dollar, US exposed healthcare stocks were slammed.

CSL closed down 3.481% to $65.44 and ResMed almost 5% to $5.24.

“Unusually for a sector usually considered defensive, healthcare was the worst performer, outstripping the other sector falls by almost a full percentage point,” McCarthy says.

“In contrast, other defensive sectors, such as utilities and telcos, were least affected by today‚Äôs sell off.”

Positive news from China that manufacturing continues to grow had little effect on the local market.

Shane Oliver, Chief Economist at AMP Capital said that while Australian shares got hit, this came after a very strong July with the ASX 200 up 4.4%.

“Shares have been vulnerable to a correction for a while and so the weakness seen over the last week may have a bit further go, but we continue to see little evidence suggesting we are at or near a major market top,” he says.

“Valuations remain reasonable, particularly if low interest rates are allowed for, global earnings are continuing to improve on the back of gradually improving economic growth, monetary conditions are set to remain easy for some time and there is no sign of the euphoria that comes with major share market tops.”

Oliver’s year-end target for the ASX 200 remains at 5800.

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