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The share market plunged to a seven-week low following the Dow’s worst night since 2020 as investors reassessed the likelihood rate hikes will tip the economy into recession.

The S&P/ASX 200 tumbled 164 points or 2.23 per cent by mid-session. Today’s loss was the benchmark’s fourth in five sessions.

All 11 sectors declined. Just one in 20 of the benchmark’s component companies advanced. Growth stocks led the rout amid questions over earnings outlooks under higher rates.

What’s driving the market

Australian investors went to bed last night comfortable in the knowledge Wall Street had taken in its stride the biggest rate hike in 22 years. After all, Wall Street greeted Wednesday night’s increase with its biggest rise since 2020. What could possibly go wrong?

Everything, apparently. Aussies awoke this morning to news the Dow and Nasdaq had suffered their biggest losses since 2020. Whiplash, anyone?

The Dow plunged 3.12 per cent or more than 1,000 points. The Nasdaq Composite shed 4.99 per cent. The S&P 500 gave up 3.56 per cent.

“The Australian share market seems to be replicating the trend seen on the US stock market last night, with all sectors trading in the red territory. Much like Wall Street, the technology stocks are seen to be driving losses in the benchmark index amidst interest rate hike concerns,” Kalkine Group CEO Kunal Sawhney said.

Economists and market analysts struggled to explain the dramatic turnaround  in sentiment. Some suggested Federal Reserve Chair Jerome Powell’s decision to rule out 75 basis point mega-raises left the market more exposed to inflationary pressures.  

“With no obvious news flow to explain the sharp reversal, it seems instead that the relief of Powell indicating 75bp moves were likely a step too far gave way to a renewed focus on high inflation and a challenging growth outlook,” NAB economist Taylor Nugent said.

The dramatic overnight reversal continued a trend towards rallies being sold into this year, rather than dips being bought. Such behaviour is more typical of bear markets.

“Whichever way you splice it, investors don’t feel comfortable holding risk. But the fact that gold also fell suggests some are moving to cash, or simply rebalancing their portfolios to either avoid or answer to a margin call,” City Index senior market analyst Matt Simpson said.

The chief economist at ACY Securities, Clifford Bennett, has been sounding alarm bells for week. Bennett believes the market is on the edge of a major meltdown as rate increases slow the global economy.

“This is very probably the big crash no one wants to have or even think about,” Bennett said. “Slowing manufacturing led to the Great Depression. That is exactly what the world is experiencing now.

“Protect your share portfolio everyone!” he added. “Stock markets can fall further 20% to 30% from here. Very possible even further.”

Going up

Just three companies on the ASX 200 were ahead after half an hour of trade. That figure improved to ten by mid-session.

News that directors were buying shares on-market helped Polynovo buck the trend. The medical device developer rose 6.36 per cent.

Healthcare company Fisher & Paykel firmed 1.29 per cent, fund manager Janus Henderson 1.03 per cent and supermarket Coles 0.76 per cent. Amcor, Costa Group, ResMed, Metcash, Wesfarmers and Cimic gained less than 0.7 per cent.

The speculative end of the market found little to cheer. Machine learning firm BrainChip climbed 6.83 per cent to a two-month high. Biotech Avecho gained 21.05 per cent on thin volume.

Going down

A cautious outlook overshadowed a 56 per cent jump in full-year profit at Macquarie Group. The financial powerhouse booked a net profit of $4.706 billion. Assets under management increased by 37 per cent.

The share price slumped 7.93 per cent after Managing Director and Chief Executive Officer, Shemara Wikramanayake, said the group maintained a “cautious stance, with a conservative approach to capital, funding and liquidity”. Wikramanayake warned the short-term outlook was subject to significant market volatility, inflation, interest rates and geopolitical events.

Other significant heavyweight declines included James Hardie down 4.01 per cent, Goodman Group down 3.12 per cent and CSL down 2.65 per cent. Woodside Petroleum shed 2.58 per cent, BHP 2.47 per cent and CBA 1.55 per cent.

News Corp dived 9.62 per cent to a 15-month low as a decline in Foxtel subscriptions took some of the shine off a record third quarter. Revenues increased 7 per cent from the prior corresponding period to US$2.49 billion. Revenues from streaming subscribers increased 32 per cent. Residential subscription services declined 2 per cent.

REA Group dropped 6.68 per cent on news residential listings declined 8 per cent last month year on year. The online property ad group expects national listings to fall this quarter.

Aside from companies reporting, the index’s worst performers were a mix of rate-sensitive growth stocks and miners. Uranium miner Paladin Energy fell 9.7 per cent, app-maker Life360 lost 8.74 per cent and accounting software specialist Xero 7.12 per cent.

The biggest float of the year got off to a rocky start. Disruptive mining analysis firm Chrysos Corporation slumped 35.38 per cent on a tough day to commence trading.

Other markets

Hong Kong’s Hang Seng took the biggest hit among Asian markets, falling 2.67 per cent. China’s Shanghai Composite lost 1.44 per cent. The Asia Dow dropped 1.29 per cent. Japan’s Nikkei trimmed its loss to 0.06 per cent.

US futures continued to fall. S&P 500 futures dropped eight points or 0.2 per cent.

The bull run in oil continued. Brent crude climbed 61 US cents or 0.55 per cent to US$111.51 a barrel.

Gold fell US$4 or 0.2 per cent to US$1,871.70 an ounce.

The dollar dived almost 2 per cent overnight and continued to lose altitude this morning. The Aussie was lately down another 0.22 per cent at 71.03 US cents.

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