Why the markets witnessed a sharp fall?

Team Veye | 01-Mar-2021 Why the markets witnessed a sharp fall

Bears tightened their grip on the markets on Friday amid a global equity market rout. Australia's leading stock market index fell by more than 2% and ended near the lowest point of the day.

With an ongoing sharp run till now, retail investors were rather taken by surprise to witness this. What exactly triggered the fall?

Recently, US bond yields have risen sharply and this has reflected in global bond markets as well. The US 10-year bond yield has surged to a fresh January 2020 high of near 1.61 percent. Japan's 10-year yield rose to 0.135 percent, their highest since November 2018. German 10-year yields rose to the highest level since March.

Although higher yields reflect increasing optimism, this also reflects increased inflation and interest rate hike expectations. With the Pandemic showing signs of abating, people will spend more in the US and this could cause inflation there.

The bond market is expecting the likely rise in inflation to push the US Federal Reserve to either lower monthly bond-buying or hike interest rates, an adverse factor for markets.

Concerns have also been voiced about the new strain of the virus. UK government had announced a lockdown in various parts of the country, including London, saying that more than half of all new Covid-19 cases had been caused by a mutated, more infectious coronavirus strain. The new virus strain is said to be 70 percent more transmissible.

Market participants are concerned that this new strain of the virus and consequent lockdowns and travel bans could hamper the pace of economic recovery.

When growth is strong, the impact of higher growth in terms of cash flows or, more precisely, dividends more than offsets the negative impact of the rise in yields. The growth in the coming months is expected to be faster than the rise in bond yields. Analysts are expecting the markets to consolidate after experiencing a steep run since March last year.

Disclaimer

Veye Pty Ltd(ABN 58 623 120 865), holds (AFSL No. 523157 ). All information provided by Veye Pty Ltd through its website, reports, and newsletters is general financial product advice only and should not be considered a personal recommendation to buy or sell any asset or security. Before acting on the advice, you should consider whether it’s appropriate to you, in light of your objectives, financial situation, or needs. You should look at the Product Disclosure Statement or other offer document associated with the security or product before making a decision on acquiring the security or product. You can refer to our Terms & Conditions and Financial Services Guide for more information. Any recommendation contained herein may not be suitable for all investors as it does not take into account your personal financial needs or investment objectives. Although Veye takes the utmost care to ensure accuracy of the content and that the information is gathered and processed from reliable resources, we strongly recommend that you seek professional advice from your financial advisor or stockbroker before making any investment decision based on any of our recommendations. All the information we share represents our views on the date of publishing as stocks are subject to real time changes and therefore may change without notice. Please remember that investments can go up and down and past performance is not necessarily indicative of future returns. We request our readers not to interpret our reports as direct recommendations. To the extent permitted by law, Veye Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss, or data corruption) (as mentioned on the website www.veye.com.au), and confirms that the employees and/or associates of Veye Pty Ltd do not hold positions in any of the financial products covered on the website on the date of publishing this report. Veye Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services.

veye logo

Grab Your Free Report On 5 ASX Dividend Stocks To Buy In 2024

(+61)

SALE IS LIVE

Limited Time Deal:   Over 72% OFF

DIVIDEND
INVESTER REPORT

Dividend-Investor-Report

Each week we cover companies offering a good combination of growth & dividends, maintaining a balance between stable 'cash flow' and risker 'raising stars'. Our guidance helps you choose companies with regular dividends and opportunities for lower-risk capital growth.

  • The best High Yield Dividend Stocks picked by our team of analysts every week.
  • Detailed in-depth Analysis with our expert Recommendations Buy, Hold or Sell.
  • Free Daily Analysis Report to keep up with the latest on what's hot and what's not.
  • Gain instant access to a wide range of Dividend Share Reports, exclusive to members only.
Frequency: Every Tuesday