Fringe financial players have been “absolutely smoked’’ in the share market correction

The ASX 200 had its biggest one-day fall in two years with some stocks getting ‘absolutely smoked’ as fears grow about the prospect of a US recession.

GROWING fears of a US recession and steep falls on global share markets contributed to a $94bn wipe-out on the Australian bourse on Tuesday, with tech stocks hit particularly hard.

Inflation in the US hit 40 year highs of 8.6 per cent last week, prompting speculation that the US Federal Reserve will up the ante with interest rate rises in a bid to take the edge off the overheating economy.

US markets had a horror week last week, and with the Australian market closed on Monday there were steep falls on the local bourse in early trade on Tuesday as our markets played catch up.

The ASX 200 plunged more than 5 per cent in early trade, recovering later in the day to close down 3.55 per cent at 6686 points, it’s biggest one-day fall since May 2020.

This translates to an $82bn loss across the ASX 200 and a $94bn drop across the broader market.

Tech stocks, miners and banks were among the hardest hit with  buy-now pay-later firm Zip Co leading the falls, losing 15.9 per cent of its value to close at 53c.  This compares with Zip’s 12-month high of $9.11.

Gold miner Chalice Mining fell 14.2 per cent to $4.23 and uranium company Paladin Energy was 9.9 per cent lower at 68c.

Hunter Green Institutional Broking principal Charlie Green.

Hunter Green Institutional Broking principal Charlie Green said it was clear that such “fringe financial’’ players would get “absolutely smoked’’ in the current economic climate, which many now see as a bear market.

“The tide is going out and people are being exposed as having no clothes on,’’ Mr Green said.

“You want to have a bulletproof business when the market is going to custard and the jury is still out on some of those companies.

“With the fin techs and Johnny-come-late stocks, it’s shoot first and ask questions later. Fund managers will be selling stock that are more vulnerable to a recession and then, at leisure, going through and picking out the ones they shouldn’t have sold.’’

Mr Green predicted that market volatility would continue in the near-term, with sharp swings likely in the days and week ahead.

He even likened the current correction to some of the biggest downturns over the last 35 years.

“These days don’t happen in isolation,’’ Mr Green said.

“You only have to look back to 2008 and 2000 and 1987. It feels like we’re in an environment up there with those shocks. It’s the market’s legitimate fears of a recession that is driving the current volatility.’’

Commsec chief economist Craig James said it was clear that Australian markets had followed the lead from the US, where many now see a looming recession.

“The US Dow Jones index has now fallen for four straight days, down 8.3 per cent. The Nasdaq has slumped by 11.7 per cent over the same period,’’ he said in a client note.

“The Australian ASX 200 is in the process of playing ‘catch up’ after the holiday on Monday…. At one stage today, the ASX 200 index was down by 5.3 per cent, the biggest intraday percentage drop since March 2020.”

Mr James said speculation is growing that US interest rate rises will now be bigger and more frequent than previously anticipated.

“While the US Federal Reserve can’t do much about rising oil prices and rising rental costs, a number of analysts fear that the Fed will have to lift rates by 75 basis points (0.75 per cent) at the next policymaking meeting on Wednesday rather than 50 basis points,’’ he said.

“And further, the worry is that the Fed will have to be more aggressive with lifting rates at future meetings, raising the risk of a recession occurring over coming months.”

Dale Gillham, chief analyst of financial services company Wealth Within, said Australian tech stocks had already copped a battering over the past year even before they got smashed on Tuesday.

“By mid-May, the Australian tech sector had effectively fallen back to pre-Covid levels and taken with it the hopes of many investors who had jumped into technology stocks following the Covid crash,’’ he said.

Catapult Wealth director Tony Catt said the local economy was looking “relatively strong” however.

“Listed company balance sheets look to be strong, we have a relatively lower budget deficit, and high house hold savings rate,’’ Mr Catt said.

“We have been big winners from strong global demand for things like agriculture, iron ore and coal, so the full impact of what’s happened overseas could be relatively muted.

“Although the RBA must act here, we think what the bond market is pricing in may be significantly overdone, and our own soft landing look very possible.’’