Investors puzzled by recent stock market drop
Investors are still unsure about the reasons behind the recent significant drop in stock markets last week – but there are plenty of theories.
Often, the scariest thing in the markets is a crash without a clear reason.
People are still uncertain about the exact cause of the crash in October 1987, for example. And when the Nasdaq technology index experienced a 10% drop in one day in April 2000, which was the first burst of the dot-com bubble, there were empty stares and universal shrugs as to why exactly that day took such a heavy blow, writes Reuters editor Mike Dolan.
The recent shake-up in mega-cap companies
The recent turmoil in mega-cap companies has been relatively modest. However, there is a lot of speculation as to why Wall Street and global exchanges saw their worst day since 2022 last Wednesday, after hitting record highs earlier in July.
Various Theories
Long-term bearish investors warn of a correction in over-concentrated indices for over a year amid concerns about excessive hype – and capital spending – around artificial intelligence (AI).
The Wednesday Nightmare
However, on this particular Wednesday, there was no sign of a smoking chimney.
The Pre-Election Turmoil
The pre-election turmoil, the worrying slowdown of the Chinese economy, poor reports from companies like Tesla, and the volatility of the Japanese yen are all seen as potential culprits.
Looking for Answers
Whatever the “real” answer may be, it certainly isn’t concerns about rising borrowing costs or higher long-term interest rates – the usual suspects during similar downturns at the same time last year or in April.
At the very least, we are seeing a shift from stocks to bonds, after…
Changes in Central Bank Policies Impact Financial Markets
The recent easing of Federal Reserve policies has led to a decrease in bond yields, while central banks in China and Canada have also lowered interest rates. These developments have had a significant impact on global financial markets.
Looking Back: A Clear Reflection
Amidst these changes, one may wonder if the sudden discomfort in expensive stocks is a fundamental issue for growth that has been overlooked throughout the year. It is important to carefully analyze the current season of reports and stable internal data to understand the full picture.
US GDP Growth Surpasses Expectations
There is a high bar set for companies trying to impress the markets – the annual profit growth of the S&P 500 is over 16% so far.
“We wouldn’t say there has been any major, noticeable change in companies’ prospects in the early reports so far,” believes Janus Henderson Investors portfolio manager Richard Cloud.
So, is there a slowdown in GDP then? Not at the moment.
The American economy has grown stronger than expected, with a rate of 2.8% in the quarter ending in June, showing steady increases in consumer spending.
The Impact of Political Uncertainty on Business Investments and Inflation
Adjusting Positions
As we move past the data on GDP and corporate reports, the horizon may seem darker due to increasing uncertainty surrounding the upcoming US presidential elections in November – with events in this regard already being tumultuous this month.
Noel Dixon, Global Macro Strategist at State Street Global Markets, believes that clients are being forced to “adjust their positions” given the sudden changes in election forecasts. What seemed like a promising opportunity for business investments and economic growth is now clouded by political turmoil and shifting inflation indicators.
The 2024 Presidential Race: Trump vs. Harris
What was once seen as a guaranteed victory for former President Donald Trump now seems more like a toss-up, as Trump faces a “more formidable” opponent in Vice President Kamala Harris.
If the excitement and momentum continue to build around Harris’s chances, Dixon believes there may be speculation about her apparent preference for higher corporate taxes and regulations. There is even talk now of a potential Democratic victory in both the White House and Congress – a outcome that seemed unthinkable just last week.
Fed Keeps Interest Rates Unchanged Amid Economic Uncertainty
It seems rushed, or at least too early, to rely on such uncertain outcomes. The Federal Reserve kept its interest rate unchanged at its meeting yesterday, as expected by the markets, but comments from former Fed officials caused surprise in volatile trading last week.
In a Bloomberg commentary, former New York Fed chief Bill Dudley called for an immediate rate cut due to the cooling labor market and increasing likelihood of a recession. He pointed out that the pace at which the economy is heading towards a downturn is alarming, and urgent action is needed to prevent further damage.
The Impact of Rising Unemployment Rates on the Economy
Recent indicators suggest that the increasing unemployment rate may be a sign of an upcoming recession that is looming closer than we think. This has led experts to reconsider their opinions on the actions that need to be taken to mitigate the potential economic downturn.
One suggested course of action is for the Federal Reserve to lower interest rates, as mentioned by Dudley in a recent statement. Despite concerns that it may be too late to prevent a recession through interest rate cuts, the inaction at this point unnecessarily heightens the risk.
The use of the word starting with “r” now carries weight, considering the almost unanimous consensus for an expected soft landing. This may indicate that the market is just now starting to react to the imminent challenges ahead.
Overcoming the Fear of Abundance
Many people have a fear of their own abundance. They worry that having too much wealth or success may change them in negative ways, or that they may become a target for jealousy or exploitation. However, it’s important to realize that these fears are often unfounded.
Instead of being afraid of our own success, we should embrace it and use it as a tool to help others and make a positive impact in the world. By sharing our abundance with those in need, we can create a ripple effect of kindness and generosity that benefits everyone involved.
