category: finance
tags: stock market, correction, nasdaq, s$p 500, dow, bitcoin, economic slowdown, trade war, inflation, recent sell-off, technical indicator.
title: Largest Stock Market Correction since 2009: Understanding the Recent Downturn in the US Equities
sub title: Devil in the Details: Trends, Forces, Signs to Watch Out for
INTRODUCTION:
The stock market correction that began on October 3 has been the most significant in over a decade, with the Dow Jones Industrial average entering a correction last week, and the Nasdaq Composite Index and S&P 500 on the cusp of a correction this week. This article aims to provide an overview of the recent downturn in the US equity market, the reasons contributing to it, and the predictions for the future. The article also analyzes the return of inflation, a trade war escalation, an economic slowdown and its potential impact on the stock market.
RECENT SELL-OFF:
The major averages entered correction territory in the last few weeks, with the Dow dropping 12% from its peak, the S&P 500 falling 11%, and the NASDAQ losing 15%. However, a bear market (a decline of 20% or more for an extended period) has not been officially triggered as yet. The sell-off has been attributed to several factors, including heightening trade tensions, higher inflation, Pre-Earnings Season Anxiety, and worries of slowing earnings and slowing economic growth. These factors have caused investors to become nervous, and they are selling equities instead of buying them. According to Sam Stoecklein, Chief Investment Officer at U.S. Bank Wealth Management, “The market is simply reflecting the growing doubt that economic growth will continue at rates as strong as we saw in 2017 and 2018 to this point.”
INFLATION AND THE FED:
One of the major concerns for investors in recent times has been the rise in inflation, driven mainly by rising wages, tax reform, and import tariffs. The 10-month low set by U.S. bond yields and its subsequent rise to three-month highs have further added to the uncertainty felt by the markets. The good news is that inflation can be controlled by the Federal Reserve by raising interest rates. The bad news, however, is that this may lead to reduced corporate profits and an economic slowdown. The US Federal Reserve (Fed) has been hinting at raising interest rates for some time now. On October 3, it indicated that an additional two rate hikes should be expected in 2018. This is despite some analysts and bank executives questioning if the Fed’s plan was to overdo it with further interest rate hikes.
TRADE WAR:
Another significant factor greeting investors in recent times has been the escalation of trade war, with increased tariffs being announced by both the United States and China. This has been blamed by some analysts for the current market conditions, and experts predict further volatility for stock markets if these trade issues continue to escalate. Donald Trump announced that he would be imposing tariffs on another $200 billion worth of Chinese imported products with a starting rate of 10%. This move has seen market analysts describing these tensions as only in their early stages. The market is reportedly “uncomfortable” with the Trump administration’s tough stance on trade, leading to some pessimism in the market.
ECONOMIC SLOWDOWN:
The United States and the global economy have been experiencing strong year-over-year growth over the past few years. However, the current market conditions have led many analysts to believe that a significant economic slowdown is looming. According to the article, the concern is that if there is slowing earnings and slowing economic growth, these factors would outweigh the tax benefits and GDP growth. With investors starting to focus on the downside rather than the upside of these issues, stock markets could continue to see selling pressure.
BITCOIN AND CRYPTOCURRENCIES:
Amidst all the madness of the recent sell-off, another quieter event continues to have a ripple effect. This is the collapse of bitcoin and other cryptocurrencies, which started in August. With more than $700 billion wiped off the crypto markets, investors worked out where to put their money, reflecting on what would be safer investments alongside the shifting stock market landscape.
FINAL TAKE:
Financial analysts and economists continue to forecast and predict concerning market conditions. However, what is being highlighted is the importance of the current state of mind of the equities market. The analysis suggests that it isn’t simply a matter of a coincidence since all the indicators are now re-wiring across the board. Ultimately, the takeaway message from this article is that investors must remain vigilant and must pay careful attention to the indicators used to make investment decisions. These include market current economic macro statistics, signals direct from big banks’ earning calls, the amount of money being spent on U.S. bitcoin futures, and newsworthy indicators such as the trade deal between Canada & NAFTA, to name just a few. More importantly, going forward, individuals should learn to analyze the data to recognize trends and use that information to make informed decisions for their investments. Those prepared to dig deeper and analyze in depth and detail are likely to make better use of the information available and stand a better chance of getting a return on their investments because good information may help to develop better insights and investment strategies.
In conclusion, there is a growing consensus among investors and market analysts that there is a great deal of inflation, economic slowdown, trade war, and mounting anxiety in recent stock market conditions. These issues, when combined, all work to exacerbate the global economic and markets uncertainty. As a result, this is presenting numerous challenges to new investors and market analysts who lack the experience to navigate through these tough times. However, seasoned market players are far more adept at spotting these trends and patterns, and many are expecting this correction to continue into the new year. Nonetheless, when the data is drilled down into, much of the scenario is challenging to accept or comprehend by the ordinary market player, who may rely on higher risk strategies to try and make a return. However, when informed the ordinary market player of the realities of the current market conditions, these savvy decision-makers are now taking a more cautious approach in their approach, moving back to more tried and tested techniques, to counterbalance potential mounting losses. Ultimately, only time can tell which way the market will move, and what investments will be profitable this year. Nonetheless, one thing is clear — this year, the market is much harder to predict. For savvy investors, paying attention to the details and tracking the data signals are vital to making a profit in this fast-changing market. In today’s market, good insights, solid investments strategies, and accurate data can help you navigate through this tough time.
SUMMARY:
In short, the recent sell-off in the US equity market, led by the DOW Jones and Nasdaq, can be attributed to a number of factors including trade war, inflation, economic slowdown, and pre-earnings season anxiety. These patterns do not reflect a straightforward connection since all the indicators to date show that it’s been a tricky year for everyone in the market. However, there are opportunities for a return in investments if informed market analysts can correctly identify market trends, patterns and try to harness them for maximum return. With this information, ordinary market players can now make more informed decisions, which could help them weather the current climate in the equities market.
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