Economic News

Selloff Hits Stock Market for Second Day (So Far)

It has not been a great week for Wall Street. Yesterday the Dow shed more than 3%, losing 832 points during the day and earning the title of worst single-day session since February. Meanwhile, as CNN notes, Nasdaq was down 4% in what amounted to its worst day since June 2016 following the U.K.’s Brexit vote.  That selloff seems to be continuing today, although the losses haven’t been as drastic so far. This leads to the natural question: what is going on?

First it should be noted that observers have warned that the market may have been overheated for some time. However the culprit behind the current selloff seems to be rising interest rates. The Fed has been steadily raising rates — most recently increasing them by a quarter point last month — and has been steadfast about this approach despite criticism from President Trump (more on that in a minute). Surely not by coincidence, the sell-off on Wednesday coincided with the 10-year Treasury yield reaching 3.24% for the first time in seven years.

As mentioned, President Trump had previously been critical of the Fed’s plans to raise interest rates, saying he was “not thrilled.”  He managed to ramp up that rhetoric on Wednesday, telling reporters that “the Fed has gone crazy.” Many were quick to point out that it’s unusual for sitting presidents to critique Federal Reserve policy, although Trump has been voicing his disagreements with the agency since before his election.

While interest rates may have been the main reason for this particular pullback, there are other looming issues that might also be concerning investors. For one, while trade disputes with Mexico and Canada seem to be getting resolved, the battle with China rages on. Due to the continuing tariffs both nations have levied against each other in recent months, this week the International Monetary Fund announced it was revising 2019 growth forecasts for both the People’s Republic of China and the United States of America downward due to the on-going trade war.

Given the many predictions that the market would start to sink, it can be tempting to look at the current selloff as the obvious end to the longest bull market ever*. Although that can always be the case, with today’s Dow losses looking more in the 100 point range as of this writing, it’s also very possible that this will prove to be more of a bump along the road uphill. In fact, as CNN notes, “[T]he market often springs back to life after such a deep sell-off. Bargain hunters scoop up beaten-down stocks and calmer heads prevail.” So while things may be a bit turbulent on Wall Street this week, don’t expect a crash just yet.

Also published on Medium.

Other Articles by Jonathan Dyer