For whatever reason – and there are quite a few – markets in Europe and the US turned lower and finished July in the red, leaving Asian markets out on a limb somewhat after their very strong month.
As a result the Australian market will start August today with a loss of more than 50 points at the start, with other regional markets such as Tokyo, Hong Kong and China expected to follow suit.
Gold, oil and many other commodities also fell and had a negative month as well (see separate story).
The sell off on equity markets halted the fall in the value of the Aussie dollar – its currently trading just under 93 US cents, down a cent from earlier in the week.
The sell off exposed the division between US and Asian market performances.
Even without the overnight falls, Wall Street would have had an OK July, but nothing like the performance in Australia (up 4.4%), China (up more than 7%) and Hong Kong ( up nearly 7%).
If anything Wall Street has been marking time now for most of the past month as traders grew increasingly nervous about the strengthening US economic rebound, the thinking of the Fed on interest rate rises, and a feeling corporate earnings and share price are too stretched.
So in some respects, the falls overnight Thursday were waiting to happen – a bit like elastic being stretched too far before snapping.
As a result the day’s losses were large, but understandable. It was all a question of when it would happen.
And it wouldn’t surprise if markets now trade with increased volatility into August (good for the those investment banks and brokers), which is normally a good month for stocks, before investors and many traders return from holidays for September and the northern autumn which can be fraught months for the markets (think the GFC and 1987 and 1929).
The falls overnight meant that both the S&P 500 and Dow suffered their first monthly decline since January.
The S&P 500 fell 39.40 points, or 2%, to 1,930.67, its largest one-day percentage drop since April. It fell 1.5% over July.
All 10 main sectors dropped more than 1.5% on Thursday, as the energy and telecom sector stocks lead losses.
The S&P is now down nearly 3% from the all time high a week ago.
The Dow saw the biggest loss, down 317 points, or 1.9%, to 16,563.37, its worst showing since February 3.
It finished the month 1.6% lower and its performance for 2014 turned negative during trading overnight.
The Nasdaq Composite lost 93.13 points, or 2.1%, to 4,369.77 and fell 0.7% over July.
And the Russell 2000 index, which tracks small to medium cap stocks, lost a nasty 6.1% as the persistent weakness in these stocks earlier in the year, continued into July.
Any number of reasons were given for the fall – from the default by Argentina (which sent its stockmarket down 8%, reversing a similar sized rise on Wednesday), to poor earnings reports in Europe and the US.
Worries about the Fed’s interest rate policies, nervousness about tonight’s jobs report for July and what another good report might mean for the timing of the first rate rise, also played a part in knocking markets lower.
Then there was the financial problems in Portugal with the Banco Espirito Santo revealing massive losses of well over 3 billion euros and the need for a huge capital injection (probably from the government) to remain solvent.
Then there was the tighter sanctions on Russia which promoted companies like Adidas to warn of the damage to earnings from the move, the fighting in Ukraine, the problems continuing to hurt Libya and the fighting in Gaza.
And then there was the feeling that markets needed a sell off to clean out the stale bulls and bears and reset sentiment.
European Markets fell by 0.6% (London) to more than 3% (Portugal) overnight.
The Stoxx Europe 600 Index fell 1.3%, extending its decline in July to 1.7% and its first back-to-back monthly losses in two years.
Another big worry was another drop in the eurozone inflation rate – it fell to 0.4% (annual) in July, from 0.5% in April and May, dragging closer the prospect of a dip into deflationary territory.
In Asia, the MSCI Asia Pacific Index fell 0.4% yesterday, despite continuing strength in Australia and Chinese stocks.
The index finished July with a gain of 2.1%. The index hit a six year high on July 29 before easing.
Unlike the US, there were some big gains in July in Asia.
In Tokyo The Nikkei Average slipped 0.2% to 15,620.80, retreating from a six-month closing high in the previous day. For the month, the index rose 3%. In Hong Kong the Hang Seng Index was up 0.1%. For July, the index jumped 6.8%.
The Shanghai market rose 0.9% to 2,201.56 at the close, the highest level since December. The Composite Index jumped 7.5% last month.
The ASX 200 closed 4.4% per cent higher over the month, after finishing at 5,395.7 points at June 30. The index is now at its highest point since June 2008.
Mining was the best-performing sector over July, up 7.7% (not surprising with the iron ore price rising in July and those strong production and sales reports).
Resources giant BHP Billiton rose 7.7% in the month and Rio Tinto was up 12%.
Woodside Petroleum was up 3.5%, and Telstra Corporation jumped 5.4%, while the big four banks all advanced.
The Commonwealth Bank was up 3.6% to a record high $83.75, Westpac rose 2.2% to $34.61. The ANZ added 1.9% to $33.97, and the National Australia Bank did best of all the four, up 7.8% as investors rerated it. It closed at $35.32 yesterday. The change of CEO this week might have played a big part as well.
Retailers did well with Woolworth up 4.9% to $36.95, and Wesfarmers, adding 5.2% to $44.02.
Travel booking website operator Wotif.com Holdings was the best-performing ASX 200 stock. It soared 37.5% to $3.34 after a deal was announced to sell the business to US rival Expedia.
And education and training provider Navitas was the worst-performing stock in the ASX200 plummeting 30.4% over the month as it downgraded profit guidance after losing a key contract.
