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The ASX has lost more than $50 billion in a single day after US recession fears sparked Wall Street wipeout

Jack Derwin
  • The worst day since December 2018 smashed Wall Street overnight, with the Australian stock exchange (ASX) getting pummelled on Thursday as a result.
  • Around 3% was wiped off all the major US markets after the strongest indicator yet of a US recession emerged.
  • Those fears are helped fuel a sell-off in Australia with the ASX dropping 117 points or 1.8% in just the first fifteen minutes of trade, wiping $38 billion from the market. It eventually closed around 187 points or 2.85% lower, amounting to more than $50 billion in total losses in a single day.

The Australian stock exchange (ASX) has been battered on Thursday after Wall Street had its worst day of 2019.

The ASX 200 -- comprised of the country's 200 biggest public companies -- plummeted 1.8% within the first 15 minutes of the session. Heading into the afternoon, the market continued to slump. By market close, it had shed 187 points or around 2.85%.

Trading platform CommSec confirmed that it was the single worst day in more than two years, with 94% of all listed companies making losses.

Despite the bloodbath, the market remains in strong positive territory for the year.

"(The) ASX has now fallen 6.83% since the July 30 record high...(but year to date) ASX still up 13.5%" InvestSmart chief market strategist Evan Lucas tweeted.

That may be little consolation to those who watched the market today, however. ASX's losses were felt broadly, with each sector falling by at least 1%.

It comes after the Dow Jones shed more than 800 points (3.05%) overnight its worst day since December.

The S&P 500 -- made up of the largest 500 US publicly-traded companies -- and the tech-heavy Nasdaq fared little better falling 2.93% and 3.02% apiece.

Why was there a sell-off on Wall Street?

The selloff was sparked after the US got its biggest recession warning yet and it's all about US Treasuries.

US Treasuries are debts issued by the US government. When investors buy these, they essentially are loaning the US government money that is gradually paid back in installations, plus interest (also known as yield). The period over which they are paid back depends on the type investors buy.

The recession warning overnight was the fact that the yield on 10-year US Treasuries dropped below those paid on 2-year Treasuries. Typically the reverse is true because investors want to be better compensated for investing for longer periods of time. Its inversion signals that confidence is dwindling in the US economy's short-term future.

It's considered one of the most reliable indicators of a recession, foretelling each of the last seven US recessions. This particular inversion hasn't been since 2007 -- foreshadowing the global financial crisis (GFC).

A potential US recession would, in turn, hurt global growth, with investors selling down Australian shares accordingly.