What Caused Friday’s Sell Off?
While it can be difficult at times to determine the exact cause of market movements, that’s not the case for Friday’s declines. As a matter of fact, the reasoning behind the declines is pretty cut and dry. In this case, there were several issues that caused concerns. For the most part, the following factors played the largest role…
- Chinese Market Crash – First and foremost, what is being considered as the largest driving factor to the sell off we saw in US markets on Friday is the Chinese market crash. A short while ago, Chinese stocks fell dramatically; and have been falling since. As a result, several questions rose with regard to the Chinese economy; which was also showing signs of struggle. Soon, China devalued the yuan in an attempt to stimulate economic growth. This caused panic in the United States and other regions because China is one of the world’s largest economies. With a lower value yuan, products from the United States and other countries become more expensive for those in China; which will ultimately harm exports and cause turmoil worldwide.
- Federal Reserve Interest Rate – While the majority of the focus is being placed on China, I believe that the Federal Reserve is also playing a role in the negative movement we’re seeing in the market. Currently, the US Federal Reserve’s interest rate sits at 0.25%. However, that can’t last forever; and most experts are expecting the fed to start increasing rates in September. This has created a bit of tension in the market because higher interest rates generally lead to poor economic activity, poor earnings, and ultimately poor movement in the stock market. Fears of the Fed Rate hike were already there. However, coupled with the Chinese market crash these fears became hard to ignore. Considering the crash and the affect it’s likely to have on the market, I don’t think that the Federal Reserve will be raising interest rates in September. Nonetheless, that’s a discussion for another time.
Details Of The Crash
On Friday, all 3 blue chip indices experienced declines throughout the sell off. Here’s what we saw from each…
- Dow Jones Industrial Average – Friday’s sell off brought the Dow Jones Industrial Average down by 530 points. At the current level of 16,4569.75, the Dow Jones Industrial Average is now more than 10% below its high for the year; meaning that the Dow is in the midst of a technical correction.
- S&P 500 – The S&P 500 also took a major hit; declining 64.84 points or 3.19% on the day.
- NASDAQ – Finally, the NASDAQ fell 171.45 or 3.52%.
While the declines hit all major indices in the United States, the Dow Jones is the only index that’s currently in the midst of a correction. However, we saw how quickly stocks can decline; and after Friday’s declines, both the S&P 500 and the NASDAQ are dangerously close to corrections of their own.
Will The Sell Off Continue On Monday?
It’s my opinion that the answer is yes. The reality is that when we see massive declines like this, it sparks a certain level of fear in the minds of investors; the type of fear that keeps declines rolling. Also, the reason for the declines in the first place is largely due to issues in the Chinese market; and I’m not expecting for the Chinese market to recover any time soon either. So, buckle down everyone because it’s likely to be a bumpy ride next week!
What Do You Think?
Do you think we’ll continue to see declines next week? Why or why not? Let us know in the comments below!