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Nikkei plunges over 1,600 points as Wall Street rout spreads

by Alex Martin

Staff Writer

Tokyo stocks on Tuesday saw their largest decline since 2016 as Wall Street’s sell-off delivered heavy blows to investor risk appetite.

The Nikkei 225 average temporarily fell more than 1,600 points to a low of 21,078.71, down from the previous day’s close of 22,682.08. It ended the day at 21,610.24, 1,071.84 points lower than Monday’s final figure.

The fall was the largest since the index dropped 1,286.33 points in June 2016.

The hefty drop affected a wide range of industry sectors and came after the Dow Jones industrial average posted its biggest one-day fall ever in terms of points after reaching a record high on Jan. 26, wiping out its gains so far this year.

The Dow tumbled 1,175 points, or 4.6 percent, Monday after dropping 666 points Friday. Technology, health care and industrial companies suffered losses and energy companies were weighed down along with oil prices.

On Monday, the Standard & Poor’s 500 index also fell, sliding 113.19 points, or 4.1 percent, to 2,648.94. That totaled a 7.8 percent drop since it hit a record high on Jan. 26.

The falls were triggered by concerns brewing over rising interest rates after the U.S. Labor Department on Friday issued a robust jobs report for January that showed wage growth picking up.

The stock market has been calm for more than a year, with prices driven by a combination of low interest rates, rising corporate earnings and economic growth. But a stronger economy and rising wages kindles higher inflation, which could lead the Federal Reserve to boost interest rates, potentially hindering economic growth.

“It’s panic selling,” said Hideyuki Ishiguro, a senior strategist at Daiwa Securities.

“The Japanese economy is on a solid footing and corporate earnings are strong, but the rapid fall has hurt investor sentiment, and it could take a while before risk appetite returns,” he said.

Looking ahead, he said the yield on U.S. 10-year Treasury notes will likely continue to flirt with the 3 percent level as U.S. wages rise and its economy remains healthy.

Tatsunori Kawai, investment strategist at Kabu.com Securities, said the Nikkei is facing a correction triggered by the plunge in U.S. stocks.

While a pullback in U.S. shares has been expected after months of market increases, he said it remains to be seen if the fall will continue. Drops of 10 percent or more are relatively common during bull markets, but a total decline of 20 percent or more from its high can lead to a bear market, he said.

Market professionals warned that the selling in the U.S. could continue for a bit. But many were also quick to say they see no recession looming, and they expect the strengthening global economy and healthy corporate earnings to help stock prices recover.

“The reasons for the increase in rates is the stronger economy,” said Ernie Cecilia, chief investment officer at Bryn Mawr Trust. “The reasons are positive. It’s not as if something like 2008 or financial Armageddon is coming.”

The sell-off Monday was so steep that some market watchers blamed automated trading systems. These systems are programmed to buy and sell based on several variables, and they may have hit their sell triggers following the first wobble for stock prices after an unusually placid run.

That may mean even more volatility in the coming days, something that investors haven’t had to deal with during a blissful year-plus of record-setting returns. Before Monday, the S&P 500 index had gone a record period of time — roughly 400 trading days — without a drop of even 5 percent.

Monday was also the first day in office for the new chairman of the Federal Reserve, Jerome Powell, and investors are wondering how closely he will stick with the low interest rate policies set by his predecessor, Janet Yellen.

Still, many market watchers said they remain optimistic that stocks will recover.

Despite worries about interest rates, they still see a recession as a long shot. With economies growing around the world, profits for U.S. businesses are expected to continue rising, and stock prices tend to follow the path of corporate earnings over the long term.

“The rate worries have been the trigger” for the stock market’s swoon, said Melda Mergen, deputy global head of equities at Columbia Threadneedle. “But fundamentally, we don’t see any new news. It’s earnings season, the time that we get more direct feedback from our companies, and we don’t see any concerns.”

Information from AP added