Drop in Equity Prices Causes Confusion Among Investors

Published on: 05 Feb, 2018

Investors are scrambling for some clarity as the stock market shows signs of a rout due to economic indicators of inflation in the United States. This is quite evident from the fact that the Wall Street closed the previous week with what seems to be a drop in two years. In Europe, markets are falling from the record levels they had reached just in the past month. On Friday, the previous week, the Dow Jones Industrial Average fell by more than 2.5 %. The index fell below 665 points; it is the first time since June 2016 that the Dow has fallen below 500 points. Among the companies that suffered a significant fall were Apple Inc. (NASDAQ: AAPL),Visa Inc (NYSE: V), and Chevron Corporation (NYSE: CVX).

The fall in the Dow Industrial Average came right after one of the best weeks when the index reached a record high at 26,617.

Investors are haunted by the fear that higher levels of inflation could lead to increased rates of interest. Investors hope that the market will return to normal conditions after the fall. Market analysts predict that the fall in the index is a typical pattern in which January tends to perform well and February exposes edgy conditions for the market.

What the rising job market means for the economy

 

Reports have shown that wages have been rising annually at a rate that surpasses that of the year 2009. The job market in the United States has outperformed the expectations of economists with the creation of 200,000 new jobs in the economy over the past month. This, however, could mean inflation, as an increase in pay causes companies to hike prices in order to achieve a balance.

Further, it seems as though the Federal Reserve will soon be hiking interest rates during a meeting of important representatives scheduled to be held in the coming month. The meeting will be headed by the new chairman, Jerome Powell, and will be his first meeting as the chairman. As of now, investors will have to wait and see what happens over the course of the meeting.

The US economy is predicted to achieve a stronger growth this year.

Economists are still harboring hope that the drop in the stock market can be restored to normal provided inflation levels and interest rates do not go beyond what is expected. Despite such hopes, reality can prove to be different with the discord between President Trump and a number of other countries.

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Danny Abramov

Email: danny@financialinsiders.com

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