Investors are nervous thanks to pending interest rate increases that were announced by the Federal Reserve. There’s also a significant group of investors who are offloading stocks after news emerged that new trade tariffs could be introduced as early as next week.
Volatility continues in the stock market, and it looks like anyone wanting stability will be in for more of a wait. Both the NASDAQ and S&P 500 indexes will open down when compared to Thursday’s opening, which is not surprising considering that Wall Street finished up in poor shape after some large sell offs.
The Impact of Rising Interest Rates and Tariffs
Thursday saw the S&P 500 index drop by 1.33% after it lost 36.16 points. The Dow Jones index was much worse, losing 420 points by the time the market closed on Thursday night. Domestic selloffs have been heavy, due to investors fearing that interest rate increases will reduce investment in the corporate sector. The latest news is that there could be three more interest rate increases by the end of 2018. This could curb inflation, but it will mean that companies and individuals will feel the sting when borrowing money. Companies without deep pockets may now delay new investments as they wait to see how interest rates affect the loan market in 2018.
President Trump’s latest tariff announcement has also had a knock-on effect on the market. It was announced Thursday that the United States would impose a 25 percent tariff on imported steel, and 10 percent on imported Aluminum. This will be particularly damaging to Asian markets. China relies heavily on exports and metal is big business for the world’s second largest economy.
The announcement from President Trump didn’t just send the US stock market down. The Asia Pacific markets outside of Japan dropped by 0.2 percent, and the Nikkei was hit even worse, falling 2.4 percent at close of trading on Thursday evening.
Many investors are worried that the new tariffs could lead to a tit-for-tat trade war that will end up damaging markets around the world. However, some United States companies will benefit as their steel and aluminum will become more competitive.
Investors Still See a Silver Lining in Stock Market Declines
Politics and investment markets are closely linked. Policy changes can have a strong influence on bonds and the stock market; as can be seen with today’s news.
Investors do still see a silver lining to falling share prices, as noted by a recent CNN survey. When asked “What’s the best thing about the recent market volatility?”, 62% of respondents said that lower priced stocks were the biggest benefit.
Now could be a prime opportunity to invest in some of the stocks that were out of your price range at the end of 2017. However, always do keep in mind that volatility can go both ways, and there’s never any guarantee of where the stock market will go tomorrow.
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