How bad was the market dive on Monday?

3.How bad was the market dive on Monday

Frances Mao

(Australian Associated Press)

HOW BAD WAS MONDAY’S SHARE MARKET DIVE?

It was the worst in more than two years – a four per cent fall, wiping out $60 billion.

Panic selling drove Shanghai down 8.5 per cent, and Wall St three per cent.

An economist’s perspective: “I wouldn’t really give it the Black Monday moniker … the markets have definitely faced a lot worse in recent years,” said Prof Richard Philip, of Sydney University.

Despite Tuesday’s rally, the market remains 9.9 per cent down on the month.

SO WHY THE BOUNCE BACK ON TUESDAY?

Traders said bargain hunters dived back into the market, pushing it up by 2.5 per cent. Bank stocks were among the biggest gainers.

The US futures market also posted strong gains, indicating it too would bounce back.

HOW DOES MONDAY’S FALL COMPARE?

Since 1992, the local market has fallen four per cent or more on 18 days – 12 of them during the GFC, including one drop of 8.33 per cent.

“While a four per cent fall is rare, and there clearly is a lot of panic in the markets, much more was seen during the GFC and that was extended for a lot longer,” said Prof Philip.

WHAT CONSTITUTES A STOCK MARKET CRASH?

Economists are loath to give exact benchmarks but UNSW economics professor Richard Holden suggests 20-25 per cent falls indicate a full-blown crash.

“At the 20-25 per cent drop you do get people being forced to sell, panicked selling, and if business start finding it hard to raise capital and make productive investments then the stock market is really affecting the economy,” he said.

“But if underlying business conditions are good, and firms keep making productive investments then the stock market still remains something of a sideshow to the economy’s health.”

* Wall St Crash 1929 – Market fell 89 per cent between Sept 1929 and July 1932

* Black Monday 1987 – The Dow Jones plunged 23 per cent in a single trading day

* GFC 2007 – ASX dropped 54 per cent from 6828 to 3145 between Oct 2007 to March 2009

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