The Dow hit the biggest fall since August 2011, at 24,345.75, the S&P 500 fell 4.10% to 2,594.04; and the NASDAQ fell 1.91% to 6,834.34.
Since the financial crisis, global economic growth has rebounded and the effect of the financial system has been stronger. Due to many complicated reasons, the expansion and contraction of the economy is mostly out of political control. The U.S. stock brought heavy blow to the global stock markets, while the policy of the Federal Reserve Board (FRB) may impact more on the global economy than any government. How to ease the economic cycle of the extremes starts to be an immediate problem.
1. ‘Blasting Fuse’ -- Tax Reform
Tax policy, the most aggressive tax cuts in U.S. history, which is published by the Trump government. The U.S. Department of Labor reported on 2ed February that annual wages grow rate (2.9%) is the biggest increase rate since the financial crisis. After the announcement, the interest rate on U.S. Treasury Bonds rose directly. In order to avoid risks, investors sold stocks and turned to the bond markets. As a result, the “Black Monday” appeared.
2. It’s the time for Quantitative Austerity Policies
In 2008, in the wake of subprime crisis, the U.S. government introduced Quantitative Easing Monetary Policy to stimulate economic recovery.
The tax cut plan could trigger inflation. The United States credit scale has reached $1,023 trillion (mainly credit card debt) in November 2017. Both forcing the FRS to implement quantitative tightening policy at a faster pace than expected in 2018 when the U.S. meets “Black Monday” again.
The collective selloff in February reflects the concerns about rising interest rates among U.S. stock investors. Higher wages drive inflation. From the Federal Reserve Meeting holding in September, 2017, it outlined plans to raise the rates for three times in 2018. However, as of 3rd February, 2018, the increase of the implied interest rate futures in the market has reached three times. It led to the adjustment of the U.S. bond market, the decrease of the circulating currency in the market and the worries of market sentiment. That is what we see today, "debt double kill."
4. Slow Bull State, Bubbles Accumulation
The Carlyle Group, David Rubenstein said: “At the moment, my biggest worry is that the most people don’t think there will be a recession this year or even next year. Generally speaking, when people are very happy and confident, something will happen.” It came to be true.
5. Programmed Trading
From the aspect of technology, the automated trading software is widely used nowadays, especially in stock trading. Investors can buy and sell between short time interval and the amount of deals can be very huge, once the market has a significant adjustment, which may let the market under more pressure. Then, it causes the market panic.
6. Watching the Callback Frequency
According to the analysis, the sharply callback of the U.S. stock market brings opportunity, but in my opinion, those who short the stock index should continue to pay attention to the rebound market. If you long the stock index, choose liquidation and turn to cash or back to short sale. Investors who want to get in the market may take a wait-and-see approach, because there will be a lot of volatility in the future.
Data Source: Yahoo Finance, investing .com