Herald business editor Liam Dann explains how it'll affect you.
New Zealand shares fell but the damage was mild as the Waitangi Day holiday gave local investors time to see Wall Street bounce back from its big slump.
The S&P/NZX 50 Index closed down just 0.57 per cent after an opening slump of more than 2 per cent in morning trading. It is now down 3 per cent from its all time high on January 5.
Equity markets have been in turmoil since late last week as the threat of rising inflation and interest rates in a buoyant US economy undermines elevated sharemarket valuations.
In the US the Dow Jones and the Standard & Poor's 500 Index fell by 4.6 per cent and 4.1 per cent respectively on Tuesday, before closing up 2.3 per cent and 1.7 per cent today.
Local investors had probably dodged a bullet, said Mark Lister, head of private wealth research at Craigs Investment Partners.
"It was quite fortuitous that the market was closed. If we were open [on Tuesday] we would have been down three or four per cent like everybody else," he said. "Rather than making any knee-jerk decisions people had the advantage of being able to sit on the sidelines and take a more pragmatic view."
While it felt that things had started to stabilise it was early days and there was potentially more volatility to come, he said.
"It's rare for a sell-off to be over in three or four days."
Across Asia markets reacted positively to Wall Street's 2 per cent rise on this morning.
Japan's benchmark Nikkei 225 index was trading up 0.16 per cent this evening, having surged as soon as trading began as investors sought bargains.
The Nikkei 225 tumbled as much as 7.1 per cent on Tuesday before regaining some lost ground to close 4.7 per cent lower.
Hong Kong's Hang Seng is trading down 0.77 per cent, while the Shanghai Composite was off 1.82 per cent.
In Australia the S&P/ASX 200 stock index closed up 0.75 per cent today after more than A$90 billion ($97b) was wiped from the market during Monday and Tuesday.
Equity markets have been in turmoil since late last week as the threat of rising inflation and interest rates in a buoyant US economy undermines elevated sharemarket valuations. Picture / Getty Images
Matt Goodson, managing director at local firm Salt Funds Management, advised taking a longer-term view at the market rather than focusing on short-term losses.
"To put it into context, the US market is only back to where it was in mid-December," he said.
Share markets around the world have been bolstered by several years of very low interest rates, low inflation and strong earnings growth.
"Perhaps there will be a welcome return to valuation fundamentals," Goodson said. "We have been in this 'Goldilocks' scenario for several years across most markets."
Meanwhile, the New Zealand dollar has stayed strong in the past few days. Buoyed by a strong global dairy auction and improved employment data, it rose above US73c - up from 72.63c on Tuesday.
"It's not like anyone is really expecting a recession," said Craig Stent, executive director and head of equities at Harbour Asset Management.
"Global data and economic activity are still pretty strong, but we are seeing an unwind of quantitative easing and gradual increase in interest rates globally. We're probably not going to see that locally because CPI is still contained and the Reserve Bank is in no rush to raise rates here."
The prospect of rising interest rates in the US was not a new story, Lister said.
"Every adviser out there has been telling their clients to brace for a sell-off. Everyone is seeing the emerging signs of inflation. Everyone is picking rising interest rates to derail- or at least unsettle the bull market," he said. "It's just the reality of it can still be a bit of shock."
