Wall Street returned from a long weekend in a belligerent mood overnight, sending stocks sharply lower. The S&P 500 fell 2.78%, the Nasdaq fell by 4.11%, and the Dow Jones fell 2.25%. Having led the rally from mid-March, big tech stocks were singled out for attention, leading the move lower overnight. With the democratisation of stock trading by online brokers, we should expect the higher participation by retail investors to lead to more incidences of herd-like volatility, just look at China where retail dominated flows.
The scale of the rally since mid-March means that at some stage a meaningful correction would, and could, occur. The price action of the past few sessions suggests that this could be that time. However, the search for yield remains in a zero per cent world, and I suspect the FOMO herd could change direction just quickly as it began. Key support levels are the 100-day moving averages (DMA) on the Nasdaq at 10,300.00, 3160.00 on the S&P 500, and 26,170.00 for the Dow Jones. All are somewhat distant still and only daily closes below them will call for a reassessment.
Asian stock markets are all lower today, but not by the same degree as the Wall Street sell-off. That trend has also been evident in recent times when Wall Street has rallied, Asia refusing to follow tick-for-tick slavishly. That suggests some resilience in Asian markets despite regional markets being in the red today. The injuries thus far look minor and not season-ending.
The Nikkei 225 has fallen 1.65%, with the Kospi down 1.0%. The Shanghai Composite has declined 1.60% and the CSI 300 by 1.30%. The Hang Seng is 1.70% lower with the Straits Times down only 0.50%. The more closely US-aligned Australian markets are lower by around 2.0%.
With no tier-1 data due in the US tonight, equity markets will be at the mercy of the whims of intra-day sentiment and headline bombs. Asia will remain on the back foot today, with Europe sure to follow suit as we await a turn in sentiment, or not, from Wall Street this evening.