Why the stock market went down so much

It sure felt like a sell-everything day on Wall Street: Stock prices plunged, and talk of a panic and comeuppance for the nearly 10-year old bull market took hold.

So why did stock prices fall so far, so fast, seemingly out of nowhere? And what explains the 832-point drop for the Dow Jones industrial average just a week after the blue-chip stock gauge notched a record high?

While there's never a perfect answer to explain how market psychology can turn on a dime, here's how financial pros are making sense of the worst day for the Dow since February, and a big decline in popular technology stocks.

Nervousness had been building for days on Wall Street. The catalyst was the recent spike in the yield on a closely watched government bond to a seven-year high.

The 10-year Treasury note -- whose key rate impacts the pricing on things ranging from fixed-rate mortgages to stocks to virtually every financial asset on the planet -- recently climbed above 3.25 percent for the first time since May 2011. And when you add the threat of higher borrowing costs on things like houses and cars and corporate debt to the economic obstacles caused by the U.S. trade war with China, all it takes is a whiff of weakness to set a major sell-off in motion.

"We don't know who is to blame here; it's a little like trying to find what or who is responsible for the dangerous hurricane in Florida today," says Chris Rupkey, chief financial economist at MUFG, a Tokyo-based global bank with offices in New York. "But make no mistake about it, the stock market decline, triggered perhaps by rising bond yields, is just as dangerous."

Rates are heading higher because things are good in the U.S.

"Interest rates are rising because economic data has been positive," explains Paul Hickey, co-founder at Bespoke Investment Group in New York.

After nearly a decade of historically low interest rates and slow economic growth, the U.S. economy is picking up speed, bolstered by President Trump's policies such as tax cuts and less regulation of businesses. The economy grew 4.2 percent in the second quarter, its fastest pace in four years. And the job market is robust, with the September unemployment rate of 3.7 percent the lowest in nearly fifty years.

In short, there's no longer a need for borrowing costs to stay at depressed, emergency levels. The fear now is the economy will get too hot and cause both price and wage inflation to spike, which hurts the buying power of consumers and crimps the earnings of employers.

For one, higher interest rates means bonds pay out bigger streams of interest to investors, which makes fixed-income investments a legitimate alternative to stocks. In short, "there's more competition for stocks," says Hickey.

Secondly, he says, higher interest rates raise borrowing costs for consumers and companies, so auto loans and mortgages become more expensive and companies have a harder time tapping the debt market. "Clearly, higher rates are not good for housing or auto sales," says Ed Yardeni, chief investment strategist at Yardeni Research. And if sales of these big-ticket items slow, so does the broader economy.

Finally, higher rates are especially problematic for so-called growth stocks, which includes tech stocks. "The lure for these stocks is growth in earnings down the road, but when interest rates are higher, the future value of those earnings streams declines," Hickey says.

Shares of tech companies, including the so-called FAANG stocks -- Facebook, Apple, Amazon, Netflix and Google-parent Alphabet -- have been market darlings for years. So when a sell-off gains steam, the stocks with the biggest gains are among the ones that investors sell first to lock in profits. Tech stocks have also been caught in the trade fight with China, as the Trump's tough stance on Beijing is causing disruptions in their supply chain. Technology companies like Facebook, Twitter and Alphabet are also facing intense regulatory scrutiny from the U.S. government.

"Tech companies are also in harm's way because of the trade war with China, in addition to concerns about rising interest rates," says Chris Zaccarelli, chief investment officer at Independent Advisor Alliance. 

There's always a chance that the sell-off can morph into a decline of 10 percent or more from the market's January peak, which could thrust the market into its second so-called price correction of the year, says Zaccarelli. Still, he predicts that any downturn won't become a bear market, or 20-percent drop, and will instead turn out to be a good buying opportunity for investors with time to ride out any storm.

Why? "The economic fundamentals are strong and rates are going up for a good reason," Zaccarelli says.

"Sure, investors feel nervous, but this is not the time to panic and sell," advises Thorne Perkin, president of Papamarkou Wellner Asset Management in New York. "We don't view this as a psychological shift, but an overdue sell-off."

The current market decline "won't be fun," Perkin adds, "but this sell-off will end and a strong economy will carry us through the end of the year."

 

October 11, 2018

Sources: USA Today

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    1 October 17, 2018
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  • Flat-rate state pension will rise by 2.6% or £4.25 a week to £164.35 next April

    Flat-rate state pension will rise by 2.6% or £4.25 a week to £164.35 next April

    ent from April next year, slightly below the 3 per cent increase pensioners received in 2017/18.</p><p>That means the standard flat-rate weekly payout will rise by £4.25 to £168.60. It comes after consumer inflation for September was recorded below expectations at 2.4 per cent, according to Office for National Statistics data today.</p><p>The September figure is used for the state pension ‘triple-lock’ uprating. The triple-lock guarantees the state pension increases in line with the highest of inflation, July’s Average Weekly Earnings growth figure or 2.5 per cent. </p><p>The annual flat-rate state pension will rise in value by £221 from £8,546.20 this year to £8,767.20 from April 2019.</p><p>As average earnings growth stood at 2.6 per cent in July, this figure will be used to boost the value of the state pension. It means the annual flat-rate state pension will rise in value by £221 from £8,546.20 this year to £8,767.20 from April 2019.</p><p>The lifetime allowance, meanwhile, will increase in line with September’s CPI inflation figure, meaning it will rise by £24,720 to £1,054,720 next year.</p><p>Tom Selby, senior analyst at AJ Bell, said that today's figures will provide a welcome income boost to millions of people currently in receipt of the state pension.</p><p>'Those who get the flat-rate amount will see their annual payment increase by over £220 in April next year, a smaller increase compared to last year but still not to be sniffed at,' he said. 'With inflation returning to the economy, the value of protection against rising prices is not to be underestimated.</p><p>'In the context of the triple-lock, it’s worth noting the guarantee will cost the Government nothing compared to the earnings and inflation "double-lock" some have proposed. It is only in a low inflation, low earnings environment that the promise begins to bite.</p><p>'The Government’s decision to peg the lifetime allowance to inflation from 2018/19 bucked a long-established trend of sharp cuts in the limit. The extra £24,720 available from April next year will be useful to savers, representing a tax-free cash boost of £6,180.</p><p>'Of course this assumes Chancellor Hammond won’t once again take the axe to the lifetime allowance in his Budget later this month. Such a move would risk sending a seriously negative anti-savings message, as well as adding more unwelcome complexity as new ‘protections’ would inevitably be needed for those close to or over the new, lower limit.'</p><p>The ONS said the consumer prices index measur eof inflation fell to 2.4 per cent in September, compared to 2.7 per cent in August.</p><p>This was the lowest level since June, when CPI inflation was also 2.4 per cent. It came as a surprise to economists who were expecting inflation to fall to 2.6 per cent.</p><p>Mike Hardie, head of inflation at the ONS, said: 'Food was the main downward pull on inflation as last year's September price rises failed to reappear, while ferry prices dropped after their surprisingly high summer peak.</p><p>'However, it wasn't all one-way traffic with energy suppliers pushing up their prices.'</p><p>Do you want to automatically post your MailOnline comments to your Facebook Timeline?</p><p>Your comment will be posted to MailOnline as usual.</p><p>Do you want to automatically post your MailOnline comments to your Facebook Timeline?</p><p> We will automatically post your comment and a link to the news story to your Facebook timeline at the same time it is posted on MailOnline. To do this we will link your MailOnline account with your Facebook account. We’ll ask you to confirm this for your first post to Facebook.</p><p>Part of the Daily Mail, The Mail on Sunday &amp; Metro Media Group</p>

    1 October 17, 2018
  •  Canadians legalize cannabis, but they may not have enough

    Canadians legalize cannabis, but they may not have enough

    Canada becomes the first G7 Nation to legalize recreational marijuana. </p><p> Medicinal use of the drug has been legal in Canada since 2001. Now it's up to each of the country's 13 provinces and territories to determine where and how weed is sold and distributed. </p><p> As with any nascent industry, especially one straddling the public and private sectors, there are potential hurdles to clear. </p><p> "There will be shortages," Bruce Linton, CEO of Canopy Growth, told ABC News. Canopy became the first cannabis company in North America to be publicly traded when it was listed on the Toronto Stock Exchange in 2014. "There's been pent up demand for nine decades of prohibition." </p><p> Aphria, the third-largest Canadian cannabis company by revenue, alerted investors that it's facing short-term supply-chain issues and will not be able to meet demands ahead of Wednesday. </p><p> There was a feverish gold-rush mentality when the law passed, and many companies hit the ground running, analysts said. However, not all of them will have the logistics and infrastructure in place to deliver enough weed to customers, especially early on. </p><p> "Investors should be warned," said Nikolaas Faes, an analyst at Bryan, Garnier & Co. "There are largely valued companies who don't have contracts with the local governments and provinces. Others are low on inventory. There will be shortages at the beginning because they won't be able to deliver enough product, and the companies who can will gain market share." </p><p> Of the 40 or so major cannabis companies in place, Faes predicts about a quarter will survive. </p><p> Weather permitting, Canopy's Linton said he will celebrate the historic event at one of Canopy's Tweed marijuana stores in St. John's, Newfoundland. </p><p> The location is significant because it sits across the street from the historic St. John's Court House, he said. </p><p> "There were over 100 marijuana cases prosecuted there," he said.</p>

    1 October 17, 2018
  •  Canadians legalize cannabis, but they may not have enough

    Canadians legalize cannabis, but they may not have enough

    Canada becomes the first G7 Nation to legalize recreational marijuana. </p><p> Medicinal use of the drug has been legal in Canada since 2001. Now it's up to each of the country's 13 provinces and territories to determine where and how weed is sold and distributed. </p><p> As with any nascent industry, especially one straddling the public and private sectors, there are potential hurdles to clear. </p><p> "There will be shortages," Bruce Linton, CEO of Canopy Growth, told ABC News. Canopy became the first cannabis company in North America to be publicly traded when it was listed on the Toronto Stock Exchange in 2014. "There's been pent up demand for nine decades of prohibition." </p><p> Aphria, the third-largest Canadian cannabis company by revenue, alerted investors that it's facing short-term supply-chain issues and will not be able to meet demands ahead of Wednesday. </p><p> There was a feverish gold-rush mentality when the law passed, and many companies hit the ground running, analysts said. However, not all of them will have the logistics and infrastructure in place to deliver enough weed to customers, especially early on. </p><p> "Investors should be warned," said Nikolaas Faes, an analyst at Bryan, Garnier & Co. "There are largely valued companies who don't have contracts with the local governments and provinces. Others are low on inventory. There will be shortages at the beginning because they won't be able to deliver enough product, and the companies who can will gain market share." </p><p> Of the 40 or so major cannabis companies in place, Faes predicts about a quarter will survive. </p><p> Weather permitting, Canopy's Linton said he will celebrate the historic event at one of Canopy's Tweed marijuana stores in St. John's, Newfoundland. </p><p> The location is significant because it sits across the street from the historic St. John's Court House, he said. </p><p> "There were over 100 marijuana cases prosecuted there," he said.</p>

    1 October 17, 2018
  • Crest Nicholson issues a profit warning but Barratt keeps benefiting from Help to Buy

    Crest Nicholson issues a profit warning but Barratt keeps benefiting from Help to Buy

    day as Crest Nicholson warned over profits but Barratt Developments said it started its new financial year in 'a strong financial position'.</p><p>In an unscheduled update, Crest Nicholson blamed a 'more difficult' than expected property market for a slowdown in property sales in London and the South during the traditionally stronger autumn months.</p><p>The Surrey-based company said it now expects profits for the full-year to come in between £170million and £190million – well below last year's pre-tax profit of £207million.</p><p>Profit warning: Crest blamed a 'more difficult' than expected property market in the South</p><p>But Barratt Developments, the UK's biggest housebuilder, said it continued to benefit from taxpayer-funded Help to Buy loan scheme and low borrowing costs.</p><p>Crest Nicholson chairman Stephen Stone said: 'The usual Autumn pick up in sales volumes has not been evident during September and October, with many customers putting off decisions to buy whilst current political and economic uncertainties persist.</p><p>'Mindful of the current uncertain market environment, our new strategy will focus on shareolder returns by prioritising cash flow and dividends, maximising the value in our portfolio, and improving operational efficiency.'</p><p>The company, which focuses on the South and London, said reservations levels in London had slowed 'significantly', with prices under pressure in areas where affordability is most stretched.</p><p>It also said that woes in the new homes market were being compounded by falling numbers of transactions in the high-end second-hand housing market, which had led to long property chains.</p><p>And added: 'Product which addresses a more aspirational market has suffered from a lack of confidence among discretionary buyers, who cite economic and political uncertainty as a disincentive to transact.'</p><p>In the six months to April 30, Crest Nicholson posted pre-tax profits of £74.8million, down 2 per cent from the same period in 2017.</p><p>'Strong position': David Thomas, chief executive of Barratt Developments</p><p>Along the results, the company also announced that its chief financial officer Robert Allen was stepping down and will leave the company after a short handover period.</p><p>Meanwhile, Barratt Developments said market conditions remained 'good' and private reservations remained 'strong' in the 15 weeks of its new financial year between 1 July and 14 October.</p><p>Ahead of its annual general meeting taking place in London today, Barratt said total forward sales as at 14 October were £3.14billion, up 12.4 per cent on last year's £2.8billion.</p><p>Chief executive David Thomas said: 'The Group has started the new financial year in a strong position, with a good sales rate, healthy forward order book and customer demand supported by an attractive lending environment.</p><p>And added: 'We are focused on delivering our medium term targets set out at our Full Year results'.</p><p>Do you want to automatically post your MailOnline comments to your Facebook Timeline?</p><p>Your comment will be posted to MailOnline as usual.</p><p>Do you want to automatically post your MailOnline comments to your Facebook Timeline?</p><p> We will automatically post your comment and a link to the news story to your Facebook timeline at the same time it is posted on MailOnline. To do this we will link your MailOnline account with your Facebook account. We’ll ask you to confirm this for your first post to Facebook.</p><p>Part of the Daily Mail, The Mail on Sunday &amp; Metro Media Group</p>

    1 October 17, 2018
  • Compare your power bills faster: New service will find cheapest deals and switch you automatically 

    Compare your power bills faster: New service will find cheapest deals and switch you automatically 

    ergy bill after exit fees</p><p>A new service from GoCompare will help households who want to save money on their energy deal but don’t want the hassle of shopping around.</p><p>Weflip is free to use and continuously searches the market for the cheapest gas and electricity deals. </p><p>Gocompare said it launched the Weflip energy switching service following a rise in energy prices where customers are overpaying £352 a year on energy. </p><p>Once customers have signed up, the service will scour available deals and if it can save you at least £50 a year on your annual energy bill after exit fees, it will switch you automatically.</p><p>Matthew Crummack, chief executive of GoCompare, says: ‘Registering takes three minutes, and all the information you need is on your latest energy bill, except your date of birth.’</p><p>A customer service telephone number will be available before the end of the year.</p><p>There are a few downsides to the service, however. It doesn't cover the entire market and Weflip has confirmed that it currently has relationships set up with 64 providers.</p><p>It also only compares fixed tariffs, cutting out potentially cheaper variable deals. </p><p>However Weflip have said that variable tariff providers will be added 'soon'. </p><p>Another drawback is that it doesn't factor in good service reviews. </p><p>This means that households could end up with an energy provider with a poor track record when it comes to customer service. </p><p>Just last week, a new league table published by Citizens Advice highlighted that many smaller and newer energy suppliers are continuing to disappoint customers with poor service levels and called on Ofgem to tighten rules over who can supply energy.</p><p>But these drawbacks are being considered. Anders Nilsson, spokesperson for Weflip said: 'At the moment people can choose three preferences. They can choose for us to search only popular suppliers, all of our suppliers, or they can opt to stick with their current supplier if they feel they are getting a good service.</p><p>'Over time we'll add more preferences like customer service ratings and the choice to only stick to green energy providers.'   </p><p>He added that if customers do have any issues with the customer service offered by their energy supplier through using the Weflip service that they are free to contact Weflip, which will endeavor to sort the issue out.  </p><p>Weflip makes its money through a commission paid from providers when you move over.</p><p>It's not the first to offer this service to customers. Look After My Bills and Labrador also offer free energy-switching services.</p><p>Flipper, another switching company, charges users £25 a year for its service because it does not receive money from energy providers.</p><p> The views expressed in the contents above are those of our users and do not necessarily reflect the views of MailOnline. </p><p>Do you want to automatically post your MailOnline comments to your Facebook Timeline?</p><p>Your comment will be posted to MailOnline as usual.</p><p>Do you want to automatically post your MailOnline comments to your Facebook Timeline?</p><p> We will automatically post your comment and a link to the news story to your Facebook timeline at the same time it is posted on MailOnline. To do this we will link your MailOnline account with your Facebook account. We’ll ask you to confirm this for your first post to Facebook.</p><p>Part of the Daily Mail, The Mail on Sunday &amp; Metro Media Group</p>

    1 October 17, 2018

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