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<blockquote data-quote="Jaysen" data-source="post: 3049" data-attributes="member: 1"><p>Thursday 11 October 2018</p><p></p><p><strong>The US stock market sell off</strong></p><p><strong></strong></p><p><strong>What is happening?</strong></p><p><strong></strong></p><p>Over the last two days, US share prices have dropped significantly. Yesterday, the S&P 500 -- an index tracking 500 of the largest companies trading on the New York Stock Exchange or NASDAQ -- fell to its worst one-day drop in eight months. And today, the after-effects continued to hit the US and global markets.</p><p></p><p><strong>What are the causes?</strong></p><p><strong></strong></p><p>The US central bank, the Federal Reserve, is raising interest rates faster than expected. Interest rates have already risen three times this year, the last time being last week. Rising interest rates causes companies to face higher borrowing costs and lower profits, which puts a downward pressure on a company's share price.</p><p></p><p>Rising interest rates also increases the return from investing in US government debt (US Treasuries), which leads to investors selling their investments in shares to buy US Treasuries. This month, strong US earnings data has led to a sharp rise in Treasury yields as investors expect the Fed to continue to raise interest rates quicker than planned.</p><p></p><p>The market is still fragile over the US-China trade war. At times of uncertainty, investors buy government bonds because they are safe (backed by the government). The dispute has also ignited fears over the rate at which the Chinese economy is slowing, which has consequences for the global economy.</p><p></p><p>US stocks, especially Amazon and Apple, which have recently surpassed $1 trillion in market capitalisation, was due for a correction at some point. Tomorrow, companies will begin to report their earnings for the third quarter of 2018 and their profits will need to justify their valuations. There is also uncertainty over how much companies have been hurt by the US-China trade war.</p><p></p><p><strong>What is the background?</strong></p><p></p><p>The US bull market -- in this case referring to shares rising on the stock market (or technically, when share prices continue rising 20% from a previous drop of 20%) -- began in 2009. This bull market recently became the longest in US history.</p><p><strong></strong></p><p><strong><img src="http://static2.uk.businessinsider.com/image/5b7da2b842e1cc24bc44f633-948/screen%20shot%202018-08-22%20at%2073459%20am.png" alt="" class="fr-fic fr-dii fr-draggable " style="" /></strong></p><p><strong></strong></p><p>The US stock market has performed better than stock markets around the world, fuelled by strong US earnings growth, low interest rates, tax cuts, and other factors.</p><p></p><p>This, compared to the unattractive 10-year Treasury yield (the return from buying a 10-year US government bond) of under 3%, has led to investors to pour into US stocks.</p><p></p><p><strong>How has the sell-off impacted the global market?</strong></p><p></p><p>Stock markets around the world were impacted:</p><ul> <li data-xf-list-type="ul">Europe's Stoxx 600 fell to its lowest level since February 2017</li> <li data-xf-list-type="ul">Japan's stock market faced its largest one-day fall since March 2018</li> <li data-xf-list-type="ul">Hong Kong's stock market fell over 3.8%</li> <li data-xf-list-type="ul">Taiwan's tech-heavy stock exchange fell to its worse day since 2008 (big on electronics/semiconductors)</li> </ul><p>Tech companies were also hit hard from the sell off:</p><ul> <li data-xf-list-type="ul">China's Tencent Holdings fell 6.8% making it no longer on of the world's 10 most valuable public companies</li> <li data-xf-list-type="ul">Japan's SoftBank Group fell 5.8%</li> <li data-xf-list-type="ul">South Korea's Samsung Electronics fell 4.8%</li> <li data-xf-list-type="ul">The FAANG companies (Facebook, Amazon, Apple, Netflix and Google) loss $172 billion in value (combined) with Amazon losing the most by value and Netflix the most by percentage</li> </ul><p>Other consequences include:</p><ul> <li data-xf-list-type="ul">Car-leasing group Leaseplan called off plans to IPO</li> <li data-xf-list-type="ul">Vannin Capital, which provides litigation financing, called off plans to IPO</li> <li data-xf-list-type="ul">Almost $13 billion was wiped off the cryptocurrency market</li> <li data-xf-list-type="ul">Oil prices fell over 5%</li> </ul></blockquote><p></p>
[QUOTE="Jaysen, post: 3049, member: 1"] Thursday 11 October 2018 [B]The US stock market sell off What is happening? [/B] Over the last two days, US share prices have dropped significantly. Yesterday, the S&P 500 -- an index tracking 500 of the largest companies trading on the New York Stock Exchange or NASDAQ -- fell to its worst one-day drop in eight months. And today, the after-effects continued to hit the US and global markets. [B]What are the causes? [/B] The US central bank, the Federal Reserve, is raising interest rates faster than expected. Interest rates have already risen three times this year, the last time being last week. Rising interest rates causes companies to face higher borrowing costs and lower profits, which puts a downward pressure on a company's share price. Rising interest rates also increases the return from investing in US government debt (US Treasuries), which leads to investors selling their investments in shares to buy US Treasuries. This month, strong US earnings data has led to a sharp rise in Treasury yields as investors expect the Fed to continue to raise interest rates quicker than planned. The market is still fragile over the US-China trade war. At times of uncertainty, investors buy government bonds because they are safe (backed by the government). The dispute has also ignited fears over the rate at which the Chinese economy is slowing, which has consequences for the global economy. US stocks, especially Amazon and Apple, which have recently surpassed $1 trillion in market capitalisation, was due for a correction at some point. Tomorrow, companies will begin to report their earnings for the third quarter of 2018 and their profits will need to justify their valuations. There is also uncertainty over how much companies have been hurt by the US-China trade war. [B]What is the background?[/B] The US bull market -- in this case referring to shares rising on the stock market (or technically, when share prices continue rising 20% from a previous drop of 20%) -- began in 2009. This bull market recently became the longest in US history. [B] [IMG]http://static2.uk.businessinsider.com/image/5b7da2b842e1cc24bc44f633-948/screen%20shot%202018-08-22%20at%2073459%20am.png[/IMG] [/B] The US stock market has performed better than stock markets around the world, fuelled by strong US earnings growth, low interest rates, tax cuts, and other factors. This, compared to the unattractive 10-year Treasury yield (the return from buying a 10-year US government bond) of under 3%, has led to investors to pour into US stocks. [B]How has the sell-off impacted the global market?[/B] Stock markets around the world were impacted: [LIST] [*]Europe's Stoxx 600 fell to its lowest level since February 2017 [*]Japan's stock market faced its largest one-day fall since March 2018 [*]Hong Kong's stock market fell over 3.8% [*]Taiwan's tech-heavy stock exchange fell to its worse day since 2008 (big on electronics/semiconductors) [/LIST] Tech companies were also hit hard from the sell off: [LIST] [*]China's Tencent Holdings fell 6.8% making it no longer on of the world's 10 most valuable public companies [*]Japan's SoftBank Group fell 5.8% [*]South Korea's Samsung Electronics fell 4.8% [*]The FAANG companies (Facebook, Amazon, Apple, Netflix and Google) loss $172 billion in value (combined) with Amazon losing the most by value and Netflix the most by percentage [/LIST] Other consequences include: [LIST] [*]Car-leasing group Leaseplan called off plans to IPO [*]Vannin Capital, which provides litigation financing, called off plans to IPO [*]Almost $13 billion was wiped off the cryptocurrency market [*]Oil prices fell over 5% [/LIST] [/QUOTE]
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