Market selloff: a mistake, really?

8 February, 2018

Nope. I am not saying Monday’s stock plunge was actually a “mistake”. But President Donald Trump is. Yes, and not just a mistake, but a “big mistake”.

Trump tweeted on Wednesday: “In the “old days,” when good news was reported, the Stock Market would go up. Today, when good news is reported, the Stock Market goes down. Big mistake, and we have so much good (great) news about the economy!”

Wall Street top three indexes went down on Monday following last week’s employment report by the US Labor Department. Data showed the economy added more jobs than expected, which increased speculation about future Federal Reserve interest rate hikes.

Last week, the Federal Open Market Committee opted to keep interest rates in a range between 1.25 and 1.50 percent, just as market players expected. The US regulator insisted on its plan to raise benchmark rates in three times this year.

Federal Reserve policymakers pay attention to two issues when deciding the future of monetary policy: labor market and inflation. However, these two factors are actually related and that’s precisely what (partially) explains Monday’s reaction.

A higher average salary and number of employed citizens translates plainly into more people with cash on their pockets ready to use it. Following this line of thought, demand will pick and therefore, prices will grow, which in other words means inflation will go up one way or another.

But wait a second… I mean… We’ve seen jobs go up during Obama’s era, we’ve seen wages increase too. However, inflation continues far from its target. What made investors think now it’s going to be different? The tax reform? Not sure.

Speculation is again playing a big role in the move. The same it played for months to go up, well, the same it plays now downwards. Markets correct themselves and this is a clear example of that. When things are overheated, it is necessary to cool down in order to resume growth.

Reasons not to worry?

Congress members were able to successfully agree on a two-year budget deal that would rise fiscal spending by $300 billion, with military spending playing a huge role in the bill. If Congress give finally green light to it, a government shutdown will be officially avoided.


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