The Straits Times Index (STI) broke below the psychologically important level of 3,000 when it opened at 2,971 points on 21 August 2015. The index fell further and closed at 2,843 points the next trading day – an 18.9% drop from its peak of 3,531 points in April. The STI has since rebounded slightly to 2,945 points but the big question on everyone’s mind is why did the STI drop so drastically?  

Chart: Yahoo Finance

Let’s explore what happened and look at how market optimism was built up in the first quarter, then how economic doubts surfaced in the second quarter before the crash we just witnessed in this third quarter.

First Quarter Market Optimism

2015 started highly optimistic and global economic growth seemed to gather steam early in the year. The U.S. led with excellent 2.4% growth for the full year of 2014. President Obama even boasted ......