The stock market's tumultuous ride that started on Monday seems to be getting back on track as we close out the week.
By the end of yesterday, the US markets had recovered most of what they lost on Monday and were moving higher.
A Series of Unfortunate Events
Monday's stock market decline was not the result of a single event. It was the product of several events and the reaction to those events by panicked traders.
- The unemployment rate reached 4.3 percent and employers added fewer jobs in July, according to the Bureau of Labor Statistics.
- On Monday Japan's Nikkei stock index fell 12 percent.
- Many major technology companies such as Apple, Meta, Alphabet, Amazon, and Microsoft reported disappointing earnings.
That's all it took to start the trail.
Thursday's Unemployment Report – Another Story
Cool heads prevailed on Tuesday. On Wednesday we saw stocks come back but with some volatility.
On Thursday there was a a new report from the Department of Labor that strengthened the confidence of traders.
Initial jobless claims fell by 17,000 for the week to a seasonally adjusted 233,000. That was lower than the Dow Jones had estimated.
That was all the market needed to start again.
Everything is great Stock indexes were higher on Thursday. The Dow Jones Industrial Average gained 683 points, an increase of 1.8 percent. The S&P 500 was up 2.3 percent by the end of the trading day. In addition, the Nasdaq rose 2.87 percent.
Treasury yield the 10-year note also rose to 3.997 percent and the two-year note rose to 4.043 percent. In addition, the 30-year Treasury Bond rose to 4.287 percent.
Wall Street Overreaction
Some Wall Street figures, such as JPMorgan Chase CEO Jamie Dimon sees Monday's market gymnastics as an overreaction.
“Markets are volatile,” Dimon said in a CNBC interview. “I think people are a little overreacting to the day-to-day volatility of the market. And sometimes it's for good reasons. Sometimes it's real [for] there is no reason.”
The R word
Monday's nine percent drop in the S&P 500 was significant. However, it was not like crashing. Moreover, the subsequent rebound almost nullifies its effect.
As noted above, the decline in US stocks was partly due to a 12 percent decline in Japan's Nikkei 225 index. How would that cause a sell-off in the country's stock markets?
The answer is a carry trade.
For years hedge funds have been borrowing money in Japan at low interest rates (think zero or slightly above). The trader will then invest the yens in technology stocks, US government bonds, currencies, or other instruments for high returns.
As long as there was a gap between the interest rate of dollars and yens in favor of the dollar – the strategy was very profitable.
However, the Bank of Japan began raising interest rates in March. At the same time, it is widely assumed that the Fed will start cutting rates soon. As a result, hedge funds began to close their positions. That led to the Japanese stock market entering other markets including America.
The Trump Dump
One thing that went up a lot on Monday was the Donald Trump fib-ulator. Dialing the fictitious meter measuring his political rotation did a 180. The former president has long said strong Wall Street performance awaited his reelection. However, Monday found him blaming President Joe Biden and Vice President Kamala Harris for Monday's stock drop. Surprisingly, to refute Trump's claim from Fox News anchor Neil Cavuto.
“The Donald Trump thing in the market amazes me,” Cavuto said. “When they wake up, everything is for him and for him. When they're down, it's all because of the Democrats and how scary they are.
“But some of our biggest drop points, three out of 10, happened during his tenure. Now, a lot of them were in the COVID years, I get it, but, you know, you either have markets or you don't. “
Market Impact on Potential Rate Cuts by the Fed
Last week's jobs report that contributed to Monday's Wall Street rout prompted many market watchers to see a Fed rate hike in September as a virtual certainty. The assumption is that the economy is escaping inflation, but it could slide too far into recession if the Fed fails to cut interest rates quickly.
The Fed's next meeting is scheduled for September 17-18. However, some have speculated that the central bank could move before then. That's unlikely because the stock market is back to record levels and the economy is still adding jobs.
Mortgage Rates Are Falling
Mortgage rates appear to be the price of a Fed rate cut. The 30-year mortgage yield on Thursday was 6.47. That's down from 6.73 percent last week. In addition, it marks the lowest level since May last year.
The 30-year refinance rate on Thursday was 6.56 percent – down 32 basis points from last Thursday. That gives homeowners who bought at high prices a chance to refinance. Mortgage rates rose 7.79 percent last October, according to Freddie Mac.
Falling mortgage rates are more of a sign of what's to come than an indication of a quick move in a stagnant housing market. It will probably take more rate cuts by the Fed to motivate domestic retailers to act.
Currently, 88.5 percent of homeowners have less than a 6 percent mortgageaccording to real estate firm Redfin.
Read more:
- Caffeine May Affect Gut Health Unexpected Findings
- Fighting Rising Drug Prices
Back to what you love! Dollardig.com is the most trusted cashback site on the web. Just sign upclick, buy, and get a full refund!
Source link
