Everybody has answers to the stock market’s collapse, 800-point loss on the Dow, one of the worst on record. Apparently that was seemingly obvious – interest rates! trade wars! George Soros!
But if these were so obvious, then why did nobody see the collapse coming? The truth is, “the random walk thesis of how markets move is the best explanation we have.” Many points out certain forces pushing markets around in fairly obvious ways.
The world has transitioned from one in which markets are fueled with an IV drip of liquidity from the Federal Reserve and other central banks to one in which fundamentals matter more. This require withdrawal of all these liquidity, close to 6 trillion Dollars out of the market. This comes from somewhere.
New Labor Department data shows that workers' wages in the U.S. continue to rise. This was followed up by a sell-off of government bonds and has refocused the markets attention towards the near-inevitable 25 basis point hike from the Fed late this month. The consumer-price index release from earlier today indicates that a rate hike it still likely.
When the U.S. dollar is strong compared to many other currencies, imports are less expensive. This is because every American dollar you have will buy more corresponding foreign currency. However International companies find it problematic as they transfer the money back to the strong US dollars. The revenue becomes less.
The stock market has a big impact on the economy. When the stock market goes down 20% or more, the individuals, companies will feel less valuable and try to control their expansion, activities, and or worse. It is the cycle as investors start fleeing the market. This will end up into recession.
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