NEW YORK — Markets on Wall Street and around the world are very nervous. Worried about the U.S. recession, investors sent the stock market in Japan to its worst day in decades and slashed billions in market value from some of the companies. the greatest technology in the world. They have turned into a relatively quiet year in the markets at its head.
For most of the year, investors around the world lifted stock markets, convinced that central banks had succeeded, if they stopped, in getting inflation under control, and were encouraged by the healthy economy of US and the promise of artificial intelligence.
That belief has gained momentum in the past few days. Weak numbers on the labor market, manufacturing and construction last week fueled concerns about the US economy slowing and criticism that the Federal Reserve is waiting too long to cut rates. Meanwhile, the Bank of Japan raised interest rates, causing chaos in Japanese markets. On Monday, the Nikkei fell more than 12%, the worst decline since 1987.
Investors are now heeding warnings that Apple, Nvidia and other Big Tech stocks are too expensive. On Friday, the tech-heavy Nasdaq composite rallied, down 10% from recent highs. It went down again on Monday. The prices of oil and other commodities fell due to the economic crisis.
US traders are betting the Federal Reserve will cut rates by half a percentage point in September instead of the usual quarterly rate cut. Others want to reduce the emergency rate. The hardest hit have been small companies that make most of their sales and profits in the US
However, there are dissenting voices who say that the sale is a good thing because the price of the property has gone up a lot. For individual investors, this is not the time to make hasty decisions, but it is the moment to make sure that their investments are well diversified, experts say.
Here’s a look at what’s causing the turmoil in the markets:
Beginning in 2002, the Fed raised interest rates rapidly to combat inflation. It has kept its interest rate at 5.4% for almost a year. As part of its fight against inflation, the Fed was also determined to ease the overheated labor market.
Investors thought the Fed and other central banks were on track, even though inflation was still above their targets — in the Fed’s case, 2%. The European Central Bank and the Bank of England cut rates once and the Fed signaled it was ready to start cutting rates in September.
Despite signs of recovery, the US economy continued to shrink and at higher rates, outpacing Europe and Asia. Then came last week’s economic reports.
Weak manufacturing and construction reports were followed by the government’s monthly report on the labor market, which showed a sharp decline in hiring by US employers. Concerns that the Fed may keep the economy tight for too long are widespread in the markets.
A handful of Big Tech stocks have more than doubled their market gains through July. But their performance took a turn last month as investors worried they had set their prices too high and their profit expectations were too difficult to meet – an idea that popularity when the team’s recent earnings reports were very poor.
Apple fell nearly 6% Monday after Warren Buffett’s Berkshire Hathaway revealed it had reduced its iPhone ownership stake. Nvidia lost more than $238 billion in market value on Thursday and Friday and the stock was down more than 7% on Monday.
The Nikkei posted its biggest two-day decline, down 18.2% on Friday and Monday combined. Another factor that caused the big move was the interest rate hike by the Bank of Japan last week.
The BoJ rate hike affected what is known as the auto business. This is when investors borrow money from a country with low interest rates and relatively little capital, such as Japan, and invest those funds in areas that will provide high returns. Higher interest rates, along with a strong Japanese yen, may force investors to sell stocks to pay off those loans.
The prevailing wisdom is: Hold firm.
Experts and analysts recommend taking the long term, especially for investors who are concerned about saving for retirement.
“More often than not, panic selling on a red day is often a good way to lose more money than you save,” said Jacob Channel, LendingTree’s chief economist, who reminds investors that markets have recovered from the worst sell-off ever. one.
As of midday Monday, the price of the world’s largest coin was less than $55,000 – a drop of about $68,000 one week ago, according to data from CoinMarketCap.
While bitcoin has served as a safe haven during the worst of the crisis, it often acts like any other risky asset that investors avoid during market downturns.
Greg McBride, a financial analyst for Bankrate, points out that a 10% pullback in the market occurs on average once every 12 months. The S&The P 500 is down about 8.2% from its recent high.
Chris Zaccarelli, chief investment officer for the Independent Advisor Alliance, says investors should wait and see how the latest turmoil plays out.
“It remains to be seen whether this recent labor market weakness is a canary in the coal mine (in which case selling is appropriate) or if it is a temporary labor market recovery (in which case this is will prove to be another buying opportunity),” he wrote in a letter to customers Monday.
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Cora Lewis and Wyatte Grantham-Philips in New York contributed to this report.
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