Why Stock Market Going Down? The Tumble Of The Stock Market Linked To The Increase In Interest Rates

The stock market’s recent plunge has been attributed to a number of things. The bond market, the surge in interest as well as the rise in the US deficit are some of the reasons thought to have triggered the plunge.

The US stock market has stumbled as the Dow recorded a 3.2 percent plunge on Wednesday. In particular, the tech stock was at the thick of things as Nasdaq index plummeted 4 percent to finish at 7,427.74. As such, analysts have revealed some of the factors that triggered the sudden sell-off.

The Increase In Interest Rates

Aljazeera released a report which blames the sell-off on the rise of US interest rates. The report reveals that the 10-year Treasury bond yields are currently pegged at 3.20 percent. This is a sharp rise from the 2.82 percent recorded in August and a peak yield in more than seven years. In another report, CNN Business reiterates this by stating that the US government is curbing inflation by raising the interest rates. In addition, the report explained the effect of this action on the stock market by stating:

“As interest rates rise, investors have been getting out of bonds, driving down their price and driving up their yields. Investors are worried that their investments will be less profitable over time if inflation picks up.”

As such, the bond market is attracting investors since they consider it to be safer than stock. This could have triggered the mass sell-off of the more expensive and volatile tech stocks which resulted to Wednesday’s Nasdaq index plunge. Unfortunately, the Fed is not showing any signs of relenting its efforts to see the interest rates go even higher.

The Fed argues that the US economy is growing fast as the unemployment rates recently plummeted to a 49-year low. Therefore, inflation might kick in if the situation is not aggressively kept in check. Recently, Fed chief Jerome Powell suggested that the Fed is a long way from achieving interest rates that will stabilize the economy.

The Trade War Between the US and China

Another contributor to Wednesday’s stock market plunge is the trade war between two of the biggest economies in the world.  China and the US are entangled in a “tit-for-tat trade war” which started in January. As a result of this, the international monetary fund projected that the global economic growth could plunge by 0.5%. Further, IMF predictedon Monday that the current trade war between China and the US will stifle both nation’s economy in 2019. As such, this could have led to the panic sell-off by stock mark investors.

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