Ask a Fool: Is the Stock Market Crashing?

US stocks began to stutter again on Wednesday

GETTYUS stocks began to stutter again on Wednesday

Technology companies accounted for most of the broad gains, outweighing losses in energy stocks, which slumped as US crude prices declined, sending the price of oil below $60 a barrel for the first time this year.

While a crash is loosely defined as a "sudden drop" in stock prices, it's generally much bigger in magnitude than this.

The yield on benchmark 10-year U.S. Treasuries hovered around 2.82 per cent after touching a four-year peak of 2.885 per cent on Monday.

USA stocks started to tumble last week after the Labor Department said workers' wages grew at a fast rate in January. That amount exceeds the gross domestic production of the United Kingdom and Canada combined.

Sue Noffke, UK equities fund manager at Schroders, told the that given how well stock markets have been doing for the past few years, the sell-off this week was not that unusual.

However, while there are reasons not to get too anxious, there's still no way of knowing whether the current correction could become a "bear market" or a crash.

But first: There's a reason this correction feels worse that any correction I can recall in 35 years of watching markets.

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Despite cooling off in the final half-hour of trading, the end result was a happy one for stock market investors.

Analysts warned that stocks had become too expensive.

Today's retreat halted as the S&P 500 hit its 200-day simple moving average (2,539), which had not been tested since November 2016, sparking a wave of buying. The stock dropped $28.24 to $59.80.

Stock values had been based on low interest rates and low inflation, said Michael Arone, chief investment strategist at State Street Global Advisors, an investment management firm. And they can fall when economies are picking up speed and life, for many people, is getting better. And it takes an average of just over another two years for the market to recover its lost ground. That makes the current downswing an official Dow correction, and many investors responded by showing signs of panic, selling off stocks at any cost. Employers are hiring at a healthy pace, with unemployment at a 17-year low of 4.1 percent. That also sent the pound higher. Corporate earnings continue to grow amid a strengthening global economy. And major economies around the world are growing in tandem for the first time since the Great Recession. The housing industry is solid.

"If markets are responding understandably to that growth, it's possible they weren't pricing in the risk that that same growth would produce some inflation and some rises in interest rates, and I think what you're seeing now is the effect of that realisation".

Fears about inflation and soaring bond yields drove the Dow down about 1,300 points on the week. Oil has not been below $60 a barrel since December 28. The Dow is still trading significantly above 20,000 point; an essentially meaningless milestone it passed through for the first time just over a year ago.

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