The Australian stock market and dollar both fell further on Friday, and Wall Street could suffer next despite notching up healthy gains over night.

Australia’s benchmark ASX 200 index dropped 2.9 per cent during a horror Thursday session which followed Wall Street’s biggest sell-off in seven years.

On Friday morning, local markets quickly climbed after trading opened  jumping 0.6 per cent in the first 15 minutes, but quickly slid back to near its opening price, before falling lower again.

The Australian dollar also fell sharply, hitting a 32-month low of 70.24 US cents this afternoon.

By 3.30pm, Australia’s benchmark ASX 200 index had fallen 0.6 per cent from its opening level.

The major banks all saw a pick-up early in the trading session, climbing between 0.45 per cent and 0.7 per cent by 1pm, but these gains had been reversed by 3.30pm.

Australia’s further losses came despite a rebound in the US’ last trading session, which saw America’s three major indices (the S&P 500, Dow Jones Industrial Average, and Nasdaq) all up by more than 1.5 per cent.

The heavily-tech focused Nasdaq 100 index gained 3.35 per cent by close, while the Dow Jones Industrial Average was up 1.6 per cent and the S&P 500 up 1.85 per cent.

Dead cat bounce

Simon Herrmann, a senior equities analyst with ASX research firm Wise Owl, said the yesterday’s Wall Street gains were the result of a “dead cat rebound”, with investors looking to snag a bargain following the previous day’s sell off. 

“It’s not a sustainable recovery,” he said.

Australia’s gains however were stifled by negative sentiment on futures markets (which are based on investors’ expectations on how markets will move ahead of time).

Unlike stock markets, futures markets don’t have open and close times and can be traded almost around the clock, and overnight these markets began to price for further losses in the US.

Saxo Capital Markets Australian markets strategist Eleanor Creagh told The New Daily that based off what’s happened in futures markets since US markets closed that much of Wall Street’s gains have been “given back”.

“The rebound has been mired buy the lacklustre earnings from Amazon and Alphabet,” she said.

“The big question is whether this is the bottom, or we could see another leg down.”

Regardless, the volatility that has seen markets jump wildly in either direction looks set to stay.

Falls unsurprising

Mr Herrmann said investors shouldn’t be any more concerned by market movements now than they should have been three months ago.

“After six or seven really strong months that have come on the back of a nine year bull market, no one should be surprised by the increase in volatility,” he said.

“Reality is starting to kick, and that’s triggering a natural sell off.”

Ms Creagh said the falls were not necessarily to be feared, either, as market corrections are “perfectly normal and actually quite healthy”.

“For long term investors the day to gyrations should be ignored, history shows us timing the market is incredibly hard and quite often doesn’t pay off in practice. Over the long term remaining fully invested will smooth out bouts of volatility.”

Further, Ms Creagh said the next few months are traditionally “a seasonally strong period” for stocks and that on a whole, global growth is decelerating rather than shrinking.

“Equities globally are pricing in the worst-case economic outcome heading into a seasonally strong period which could lead to some positivity heading into the end of the year,” she said.