A lot of investors whether new or old probably know that Dow Jones Industrial Average is merely a stock market index. The Dow Jones Industrial Average is also referred informally to as Dow, and it is based on thirty large public trading companies at any one trading day. The word Dow Stock is regularly used by the media and the investors to mean the overview health of the whole stock market. This article is about the reason for the fall of Dow Jones Industrial Average.
The Dow Jones Industrial Average fell by seven hundred points as an aggressive market sell-off collapsed hope for a turn around on 4th December 2018. On the previous day, there was a moderate stock rebound, and the investors were left contemplating why the Dow Jones Industrial Average was down the following day. Sometime prior to the occurrence of this situation, the White House had announced an interim truce between the two trade hostilities; China and the United States (US). However, since the truce was communicated, the American government has moved on quickly offering definite details displaying how China conceded at the G-20 summit.
The US decided to hesitate on the warning they had issued to China regarding raising the tariffs on their products. However, from the official statements of two trade delegations, it appears not much was agreed on the negotiations. There was confusion shortly after, brought about by conflicting statements from the Trump administration and the White House economic advisor on when the hold on tariffs would start. The differences prompted the investors to think about if the two countries will ever work well together soon. The investors have lost faith, and the marketers are getting worried regarding a recession that is hinting to be around the corner.
During the same period the yields of ten-year Treasury bonds went down to the decreased by the largest amount seen in a decade. It was not the first time the ten-year Treasury bonds yields fluctuated, but investors are concerned by the current drop since it resulted to the flattening out of the bond yield curve. This implies that the yield of two-year bonds will enlarge while the ten-year bonds yields will lessen. In addition, it highlights that both inflation and rates of betting interests will drop for the following ten years. These are warnings of a recession because they define the default financial atmosphere in such cases.
In conclusion, typically, up to when the yield curve turns around will the stock market enter a phase of aggressive sale-off. This implies that the ten-year Treasury bond yields drop below those of two-year bonds.