Dow slumps: A bad omen for ASX investors?


The Dow Jones Industrial Average sank 89 points overnight Friday as worries about a Greek debt default spooked investors.

So, is it time to get worried about a market correction? The reversal essentially erased a week’s worth of small gains for U.S markets. The Aussie dollar, so strong for a few weeks, slumped back down below $US1.07.

Investors are starting to wonder whether this is just the market catching its breath, or is the second down week of the year a sign that the market will see a correction before continuing its ascent?

All three major U.S. indexes are solidly in the red, with the Nasdaq declining 0.95%, making it the default winner of the three, while the Dow’s 1.1% drop marks the worst performance of the day. All 30 of the Dow components are showing losses, with most of them down between half and one-and-a-half percentage points.

The biggest outlier in the Dow is Alcoa (NYSE: AA) . The world’s third largest aluminum maker is down 3.5%, as a Reuters report details how the entire industry is struggling against excess capacity, low prices, and squeezed margins that an abundance of aluminum creates. It doesn’t bode well for ASX aluminum companies like Rio Tinto Limited (ASX: RIO) and Alumina Limited (ASX: AWC).

China’s culpability in this should not be overlooked. The country produces roughly 40% of worldwide supply, and despite terrible economic reasons, politics in the communist country makes it difficult to shutter plants and cut jobs.

So, with stalling Greece negotiations and increased volatility, is a near unprecedented run of quiet success in U.S markets coming to an end? Not likely.

Greece and the EU will come to a successful resolution because European leaders know they can’t let the Mediterranean country fail. Meanwhile, at home, the U.S. economy is showing strength, and if you are into technical indicators, they continue to point upward. Considering January’s historic run, a little pullback is not a bad thing.

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