University Times

Jittery Markets

As Bond yields increase, U.S. stock markets continue to fall.

A+trader+on+the+floor+of+the+New+York+Stock+Exchange.
A trader on the floor of the New York Stock Exchange.

A trader on the floor of the New York Stock Exchange.

Wang Naishui

Wang Naishui

A trader on the floor of the New York Stock Exchange.

Kyle Frizol, Copy Editor

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When news of the U.S. economy’s quarterly earnings exceeding estimates surfaced last week, financial markets throughout the world reacted, many in negative ways.

On Friday, Feb. 2, the Dow  Jones Industrial Average (DJI) fell 600 points, signalling uneasiness that snowballed at the opening of last Monday’s trading and continued throughout the week. Amid various insights from financial managers and investment firms, the general consensus is that the stock’s crash is the result of anticipated interest rate increases, steady growth in corporate profits and bond yields becoming more attractive.

As New York Stock Exchange (NYSE) and NASDAQ opened for trade last Monday, DJI began to free fall to a 1,600 point loss, the largest in recorded history according to CNN Money. By closing, the DJI had recovered to a 1,175 point loss, which greatly exceeded its previous largest single-day loss.

This is the first time that the US Financial markets have stumbled significantly in 2018.

“If the economy gets much stronger, it could touch off inflation, which has been mysteriously missing for the nine years of the post- crisis recovery,” said CNN Money reporter Matt Egan. “That could force the Federal Reserve to raise interest rates faster than planned.”

Then, last Thursday DJI experienced its second 1,000 point loss at closing. These losses wiped all gains for Dow Jones in 2018.

Beyond the United States, China’s market slipped 5 percent last Friday, closely followed by Hong Kong and Japan with 3 percent losses.

Bond yields in the U.S. continue to spike, which is causing investors to consider lower risk investments compared to stocks. As investments are pulled out of the NYSE and NASDAQ and are replaced in current short and long-term bonds, the stock market is taking large hits close to home for DJI and other major indexes.

Alexandra Coupe, associate director at PAAMCO, a investment management solutions firm, explained her standpoint for current and future investments in the near future:

“If I have to choose bonds or equities, with interest rates going up, bonds just got more attractive,” she said.

According to Reuters, following Thursday’s stock drops, S&P 500 and Dow Jones Industrial have confirmed that they are in correction territory, which is a 10 percent drop from their peak price last month.

The uncertainty of the U.S. financial market has Wall Street scrambling to piece together if this is a natural cycle or a warning of a larger trend. However, there is no definitive answer and only time will tell.

“The dust hasn’t settled yet, and I think both buyers and sellers are trying to figure out what this market really wants to do,” said Jonathan Corpina, senior managing partner for Meridian Equity Partners in New York.

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