A stock investor checks the share prices at a security firm in Hangzhou, east China's Zhejiang province on December 9, 2014. Shanghai shares plunged more than five percent on profit-taking on December 9, only a day after the benchmark composite index broke the 3,000 mark for the first time in more than three years.STR/AFP / Getty Images
Global stocks were shaken on Tuesday, giving added urgency to strategists' warnings of rising volatility in the year ahead.
In midday trading, the S&P 500 was down 1 per cent, while European blue-chips fell 2.4 per cent and China's benchmark index sank 5.4 per cent in overnight trading.
The sudden shift in investor sentiment followed news that Chinese authorities had changed their policy for accepting local government debt as collateral – but the stock market had also been running red hot in recent months, drawing in fickle speculators.
Prior to Tuesday's dip, the Shanghai composite index had risen about 50 per cent since the summer, raising concerns that the rally had become over-extended.
In Greece, some of the concerns that drove the recent sovereign-debt crisis reignited over risks that the government could collapse. If it does, a group that favours the euro but has campaigned against budget cuts stands to gain power, putting at risk some of the reforms that have stabilized the crisis in recent years.
Greece's benchmark stock market index fell 13 per cent, for its biggest one-day decline since 1987, according to Bloomberg News.
The bond market was also rattled: The yield on Greece's 10-year government bonds spiked to 7.8 per cent, up nearly 80 basis points.
The Canadian stock market, which had been suffering from low oil prices and a bear market in energy stocks, looked comparatively safe. The S&P/TSX composite index fell just 38 points or 0.3 per cent – marking a substantially better day than Monday's 300-point collapse.
Canadian energy stocks rose 0.6 per cent after the price of crude oil stabilized at about $63.55 (U.S.) a barrel. Materials rose 2.3 per cent after the price of gold surged $26 an ounce, to a six-week high of $1,230 an ounce.
This is the season when a number of market watchers give their thoughts on the year ahead. So far, most are cautioning that investors should be prepared for an environment of rising volatility as the Federal Reserve prepares to raise its key interest rate for the first time in years.
Bank of America's Michael Hartnett said in a conference call that "the era of maximum liquidity and maximum returns is behind us", while calling Tuesday's turbulence "a beast of a day."
BlackRock's global chief investment strategist, Russ Koesterich, said that if the bull market continues through 2015, the ride for investors will not be as smooth as it has been in recent years.
David Berman