What Happened to the Stock Market Today? What happened to the stock market today? Interest rates are rising in 2018. Tariffs how To Invest In The Stock Market Uk trade wars may be coming. Why is the market up or down?
The stock market is a collection of countless transactions. It’s not a single thing and it’s not a single stock and it doesn’t speak with one voice. Yet as you can learn from One Up On Wall Street or The Little Book of Common Sense Investing, this doesn’t have to affect your returns in the long term. It can even be a great opportunity for you to find bargains in the stock market! On November 8, 2016, Donald Trump was declared to have been elected as the 45th president of the United States. During the evening and night of the 8th and through the morning of the 9th, global financial markets lost a tremendous amount of value—at one point, US markets had lost a trillion dollars in one of the biggest crashes ever. Some of this volatility reflects the uncertainty that switching the White House between two major parties always provides, but it also demonstrates how global markets see a Trump administration as unpredictable, unmoored, and even dangerous. By the time of Trump’s inauguration and into the first months of his presidency, broad market indexes climbed to new heights.
Early conventional wisdom suggests that all of his signals on reducing regulation and corporate taxes would improve profits. Financial services, petroleum, private prisons, and other market sectors saw even larger gains as the administration made specific gestures to shuffle more money their way. Throughout his presidency, questions arose from his handling of various events, including one self-inflicted crisis after another. Tensions rose as he fired Michael Flynn and then FBI director James Comey. The selloff on the morning of May 17, 2017 occurred after reports that Comey was asked to drop the formal investigation into Flynn. On 1 March 2018, the president seemingly spontaneously announced tariffs on steel and aluminum imports. This has at least two implications. First, the cost of materials for large companies such as Boeing and Ford are likely to rise.
This will increase their costs overall and could reduce their profits. With that said, companies such as US Steel rose on the news, as their products could become cheaper in comparison. Second, given that the effect of tariffs is to make imported goods more expensive so as to reduce the amount of goods imported, China may retaliate by imposing its own tariffs. Who knows what those will be? Whatever the case, this will make US goods less attractive in Chinese markets, and US companies relying on sales in China will end up making less money. Political turmoil of this sort makes markets nervous. By the 25th of June, 2018 the Dow Jones Industrial Average had posted losses in 9 of the previous 10 days. For more details, see What Does a Trump Administration Mean for the Stock Market?
Interest Rates Returning to Normal The last week of January 2018 and the first week of February 2018, the Dow Jones dropped several hundred points. One of the big drivers of the stock market since 2008 has been monetary policy: in specific, the Quantitative Easing program of the Federal Reserve and the low interest rates. As a result, a lot of money chased better returns in the stock market. With every indication that the Federal Reserve may raise interest rates, savvy investors believe that stocks are a little less attractive. Because other, less risky investments, will start returning a little more. Fed has made in a speech here or there. The important takeaway is simple, though: money will flow quickly to where people think they can get the biggest, least risky return.
Throughout 2017 and 2018, the Federal Reserve discussed a policy of raising interest rates, as they’d been at historically low levels for a historically unprecedented amount of time. In the long term, this may reflect that the Great Recession of 2008 is finally over—especially given that the US economy has been at full employment for a while. Time will tell what a new Federal Reserve chairman will implement in terms of policy, but giving the Fed options to reduce rates again as necessary is a positive sign for global economic outlook. On June 23, 2016, voters in the United Kingdom voted for their country to leave the European Union. Despite the UK’s one-toe-in-the-water approach to the European Union, as evidenced by keeping the British Pound instead of the Euro as prime currency, the current state of the country is still tied to its membership. Trade deals will have to be renegotiated.
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The two year process of political and economic disentangling is unprecedented, and that creates uncertainty. Whereas London was once the financial capital of western Europe, it remains to be seen if it will continue to be the financial capital of the European Union. Hence the drop in the value of the pound. Hence economic uncertainty for all companies which do business in the UK or the rest of the Continent.
Will the UK fall into a recession? How will that affect global demand? Of course, stocks going on sale can be a good thing, if you’re ready for it. China’s 2016 Stock Market Crash As another example, China’s currency devaluation in January 2016 made the renminbi less valuable compared to the US dollar—and made Chinese stocks look less worth owning. This triggered a selloff in Chinese markets, and the volume of sales triggered a circuit breaker which suspended trading.
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That’s a short term shock which makes a lot of people catch their breath. China’s a particularly pernicious example, as it’s still destroying its stock market in order to save it. If the economic powerhouse that is China suffers from economic turmoil, that’ll affect global demand. The world’s just digging itself out of an economic crisis from 2007, so investors are rightly concerned about global stagnation.
What Happened to the Stock Market Today What the market did today is a combination of the decisions of hundreds of thousands of people. Everyone seems to have an explanation for why stock prices rise and fall. People are happy about the economy. People are worried about the economy. People want interest rates to rise. People want interest rates to fall.
Company A met its earnings goals. These contradictions suggest that post-hoc explanations are guesses. Any of the measurements people quote—any of the stock market indexes which go up and down—are just measurements. They’re big bundles of numbers all mixed together.
In all truth, they only reflect a snapshot of a point in time. Maybe you’ve just retired, and you’d like to take 40 years of profits to pay off your mortgage, so you’re selling some stocks. Some of these motivations come from people all following each other, trying to predict the exact economic actions of other people all engaged in the same activity. People who bought a stock at too high a price are looking for greater fools to unload it on.