US markets suffer steep slide to enter correction territory: What is it?

Published on Jan 25, 2022 10:47 AM IST

Wall street slide: The market is waiting to hear from Fed policymakers after their latest meeting ends on Wednesday. Some economists have expressed concern that the Fed is already moving too late to combat high inflation.

A general view shows a Wall Street sign outside the New York Stock Exchange (NYSE).(AFP Photo)
A general view shows a Wall Street sign outside the New York Stock Exchange (NYSE).(AFP Photo)
By, Hindustan Times, New Delhi

The jitters over inflation-fighting measures from the Federal Reserve and the possibility of conflict between Russia and Ukraine sent Wall Street into a tizzy on Monday, which went down four per cent before bouncing back slightly at the end of the day.

The index has recovered from an intraday loss that big only three times in the past.

The roller coaster day saw benchmark stock indices entering the so-called correction territory and flirting with near four-month lows as investors anticipated guidance from the Fed later this week about its plans to raise interest rates to tame inflation, which is at its highest level in nearly four decades.

What is stock market correction?

When the stock market keeps rising steadily for an extended period - as was visible during the coronavirus disease (Covid-19) pandemic - talks begin about a correction.

It is a moderate decline in the value of market index or the price of an individual asset. According to market norms, a drop of 10 per cent in the value of stocks from their most recent highs constitutes a market correction.

In the peak of January 3, the S&P has fallen by as much as 10 per cent, due to which market experts said it has entered in the correction territory.

The wave of selling also extended to cryptocurrencies. Bitcoin fell as low as $33,000 overnight but rallied back above $36,000 by late afternoon. Still, the digital currency is far below the high of more than $68,000 it hit in November.

How long do market corrections last?

Experts say market corrections are regular and short-term occurrence, which can last for a few weeks to a few months.

The market is waiting to hear from Fed policymakers after their latest meeting ends on Wednesday. Some economists have expressed concern that the Fed is already moving too late to combat high inflation.

Other economists say they worry that the Fed may act too aggressively. They argue that numerous rate hikes would risk causing a recession and wouldn’t slow inflation in any case. In this view, high prices mostly reflect snarled supply chains that the Fed’s rate hikes are powerless to cure.

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