Things like the tariffs have been around for months now. Also the tax cuts were used for stock buybacks, but I thought that was months ago.
Is it due to Mattis leaving? Whats the cause?
Trump being Trump. I believe it’s the uncertainty overall. I expected this a lot sooner. What a mess.
More than anything it’s regression to the mean (what goes up, must come down). The market had been expanding since 2008. It was due for a correction. Instead of letting it play out, the Republicans decided to juice it a little more with tax cuts. So now instead of falling for the small percentage it was bound to, now it fell by 20%, terrifying everyone even more.
When corrections happen, investors look to political leadership to see if someone’s going to make it better or worse, and, well… just look at Twitter today. Trump shitting his diapers, Republicans acting like they aren’t the majority party who could rein him in.
Foreign investment raised the prices of stocks for the last few years. As confidence in America wanes, foreigners are selling their shares.
I didn’t know about that. I guess I’m surprised it took 2 years for this to start happening though. Lots of us lost confidence in America back in 2016. I’m not sure what took everyone else so long.
I heard Trump threatening to fire the fed chairman, and the fed raising the interest rates also played a role in this.
I’m an ex investment banker. I sold everything in May 2017, so I’m a patsy. In the markets, timing is everything. Maybe I sold to early, but I sleep easier. Markets are rationale over the long term, but can be *extremely *irrational short term.
People thought having a conservative, tax-cutting President would be a good thing. And that the tariff stuff was mostly bluff and would be over quickly.
The irrationality on display has finally sunk in. Fasten your seatbelts, it’s going to be a bumpy ride.
Regarding the overseas stuff: A relative was employed by a solar panel company. It is owned by Germans. So, shut down the US part and get out before things get really bad. Lots of stuff like that going on.
The main reasons are
1 ) The fed is raising interest rates
2 ) There is trade war with China
3 ) The market itself is over inflated.
Give it some time, it will bounce back.
Same here (I was just an investor, not a banker). Yeah, I missed all the run-up, but I also missed this huge downturn and the stress of knowing that it would happen but not knowing when. I don’t regret selling.
I am staying in, just as I did in 1987, 2002 and 2008 (lost 40%).
I was working then and nearly all in stocks - actually held all stocks for the first five years of retirement - during which I more than doubled.
Over the second five years of retirement I gradually rebalanced to 60% stocks (still have as more in the market as when I retired). That 40% will cover 8-10 years of expenses before I have to sell any stock funds.
ETA - I sleep well
It’s an expression of how confident people are in Crooked Donny’s leadership.
I don’t care one way or the other which way the market goes, and since I’m very early in my investing life I really like it when the market goes down because of uncertainty, as it’s most likely temporary and I can buy in at a lower price. I think of all my investment savings as an entirely abstract concept, just a place where I put all the money I have no use for now, and when I decide in 30 years that I’m getting sick of working, then I’ll care about the exact amount and see if it’s enough to support me getting out of the workforce at that time. Obviously for those closer to retirement (like my mother), this drawback might have major implications, but if you/your investment advisor was doing things right, you would have been properly prepared for this inevitable correction. It was going to come; it was only a question of when. With the P/E ratio now being well below historic averages, unless there’s some bad news about the economy as a whole coming out, we should see it pop back up after the uncertainty is dealt with. It still may go down a bit though as people continue to sell off as the uncertainty remains, partially accelerated by desires to lock in their tax gains or losses now at the end of the year, so I won’t say we’re at the bottom now, but I firmly believe that dumping stocks now is a terrible decision. The US economy doesn’t really have the same existential threat to it that it did in 2008 - the only threat is more akin to nuclear annihilation where it won’t matter what your money is in, it’ll all be worthless. Which reminds me that the few times that I’ve looked, I’ve noticed my modest holdings in a gold mining mutual fund is doing much better than the market…
The Dow went up by 1,000 points today, and today wasn’t really any different than the last trading day, 48 hours ago.
It’s also important to remember that these dramatic changes aren’t all that significant in terms of the total market value. Today’s rise was only about five percent of the total market. Hideous in the short-term, of course, but just a bump in the long-term.
Not long ago, a a rather famous economist said, “I let my political feelings distort my economic judgment.” I see, from this thread, that he is not alone.
As do I!
I predict the Dow will be down for the week.
Yes, Trump implemented tax cuts that were good for corporate profitability; the stock market did well.
But Krugman’s point applies equally well in both directions. It is equally foolish to allow this short term economic outcome to distort one’s judgment on whether Trump is a suitable custodian for the economy and the nation.
A friend of mine in the financial industry says a large portion of trading on days like today are due to something called Algorithmic Trading. Trades made automatically based on momentum in the market - essentially, the machines take over trading. Anyone know more about this?
Algorithmic trading simply put is finding mis-aligned pricing in the markets. For example, think of S&P futures contracts as a “virtual” substitute for a basket of S&P stocks, except that
a) they expire (disappear at a fixed point in the future aka expiration)
b) cost a fraction of owning the underlying stock
c) have less transaction fees
Now, one can make a formula that says a+b+c ~S&P 500 stock basket. Adjust for transaction fees, interest costs, and toss in some “implied volatility” (costs that you can’t fully quantify but are there like a lag when you place an order at a specific price and when the order actually trades at a different price). When the futures relative to the S&P basket trades above or below the formula valuation, then do the standard “buy low, sell high” or vice versa. When the trader unwinds the position, assuming it works according to the model, they make that arbitrage or pricing misalignment. Traders used to do this in their heads and in the trading pits. Now computers do it on a massive scale to make pennies on any one trade, but if you trade enough volume this is “risk free” (caveat that you have to invest a ton of money in the infrastructure and trading models, and all bets are off when a black swan incident occurs).
So, computers now do these obvious mis-pricing adjustments. And they do it across different markets (For example, the S&P futures can trade on multiple exchanges around the world, so the price doesn’t always move exactly the same by the same amount all the time).
Then there is second order trading. There is a correlation between products like the S&P 500 and the DJI, or Brent crude oil and West Texas crude. This isn’t a mis-aligned pricing of the exact same thing, but statistic correlation allows for trading mis-pricing with a higher degree of risk.
So, you have computers doing the trading, are blindingly fast, often investment banks have invested to be able to trade faster than regular folks, and trade a ton of money to make these mispricings. They also trade so fast that they can exacerbate market swings up or down. It’s also why it’s not uncommon in volatile times to see the market up 2%, then down 2% and then up 2% for the day. Nothing fundamentally changed intra day in the global economy, but the computerized trading kicks in.
There’s a lot more to it than the above, but I think I’ve given a fair layman’s kinda intro.
Worth noting that panic selling is nothing new. “Circuit breakers” were installed after the 1987 crash. Basically, when the market or a stock declines x%, then it quits trading. Gives folks a chance to verify news or rumors, go the bathroom, have a drink of water, and decide what to do. “Wow, my favorite stock just plummeted 15%, the analysis shows this is now really a bargain, the long term fundamentals are fantastic, this short term trump twitter will die out in a 24 hour news cycle = profit.” Or, “my god, I have no cash, kids going to college and I just realized Mueller can prove a smoking bazooka, I better sell everything I own before it drops more.”
Then the market starts to trade again, and hopefully more rationally with less panic. If it drops further, then trading is halted for the day. Again, so investors can take stock. Of for computers to catch up with all the mis pricings…
When it was human trading, there were panic sell offs (hence why circuit breakers were installed) but much less of these large intra day swings. When humans traded, you had “market makers” who would step in. I don’t know how many times when I was at UBS in Hong Kong in the 1990’s before algorithmic trading, when you’d read why the market dropped and then bounced back in later afternoon trading based on rumors of Fed intervention or some such BS, when the reality was I watched the head trader say “this is oversold”, buy 500 futures contracts, Morgan Stanley say “there’s a real buyer” and bought a couple hundred, Goldmans would jump in, then pretty soon retail punters would buy 100 shares.
The market fluctuates. 
Because it is now a relatively large number swings are more newsworthy. Besides, it is one of the few places Trump looks good to the public at large and so many people are frothingly anxious for the market to crash to make Trump look bad.
In other words, it is just the market being the same old same old. And it will generate gallons of opinions and professional advice on what is happening. None of which will be relevant 24 hours after it is printed.