Happy Thanksgiving Holiday Updates

The selling on Wall Street just won't quit, and here's how bad it could get

The selling on Wall Street just won’t quit, and here’s how bad it could get  

Just a few weeks ago, the Dow Jones Industrial Average hit a fresh all-time high. On Wednesday, after several days of triple-digit declines, it closed down more than 600 points having erased all of its gains for the year.

It’s not always possible to pinpoint why the market is up or down at any given time, but there are several factors that likely have contributed to the recent sell-off.

Sure, by several measures the U.S. economy is strong. Unemployment is at decades-old lows and businesses and consumers have shown confidence. Economic output is growing.

Profit margins at risk

As they have all year, companies are reporting mostly good financial results for the third quarter. But this time around, executives have been talking about the challenges they face with rising production and materials costs and relatively new tariffs. Some of these executives say their profit margins risk getting squeezed by these factors, adding they might have to pass rising costs on to customers, if they haven’t already.

Seven out of 11 sectors of the S&P 500 are in correction territory, meaning they have lost 10 percent or more since their most recent highs. Hardest hit are materials stocks, financials, energy and industrials. Consumer staples are a bright spot, on pace for their fifth straight month of gains fueled by Procter & Gamble and others.

Wall Street’s so-called fear gauge, the CBOE Volatility Index, is at 25, the highest it’s been since the market swoon earlier this year. It’s an index that tries to measure what direction traders think the S&P will take in the near term.

Fearing higher rates

That brings us to the Federal Reserve, which has raised its benchmark rate three times this year and is expected to hike one more time in December. The Fed has been determined to stay ahead of inflation and has signaled a willingness to keep raising rates to keep it in check, despite criticism from President Donald Trump.

Rising rates affect consumer willingness to borrow, however. Bank stocks have taken a hit this year on worries about lending. New home sales in September dropped 5.5 percent to a two-year low, and auto dealers report sales are down.

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