In the past two months, the global financial markets have been volatile as ever. It is not uncommon these days for the Dow to have triple-digit moves within a day. For example,yesterday, the Dow shed more than 400 points when the markets opened, then pared the losses, and then ended the day lower by more than 500 points. The same is true with all the major indices.
There are a number of reasons why
the market is acting like this. First, investors are worried about corporate
profits. This is because, even after a great third quarter, most companies
started giving out bleak forward guidance. A good example of this was Apple,
which announced that it will stop issuing the numbers of devices shipped.
Second, investors are worried
about global growth. In the United States, the economy rose by 3.5% in the
third quarter after rising by 4.2% in the second quarter. This growth is
expected to continue slowing down as the impacts of tax reform become
normalized.
Third, investors are worried
about the trade issues. While Donald Trump and Xi Jinping made a deal in
Argentina, investors are skeptical about the results. This is because both
countries have hardline positions. For example, on intellectual property, China
does not believe that what it does is wrong. It also believes that it is
necessary as it works to become a developed country.
Fourth, with the Federal Reserve
set to hike again tomorrow, investors are concerned about the yield curve. The
yield curve is simply the difference between the longer-dated and the
shorter-dated yields on treasuries. While the yield curve does not cause a
recession, it has historically been a good predictor of recessions.
The Dow Jones Industrial Average
ended the day at $23674. This was a continuation of the bear territory the
index reached on Friday. On the chart below, the price is below the 25 and
35-day EMA with the RSI closer to the oversold level. Today, the index will
likely remain volatile as traders wait for the Fed decision tomorrow.
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