The Reason Behind Stock Market Crash - The Black Wednesday

Yesterday, the US stock market plunged more than 3% in a single trading day due to sharply rising interest rates. Read the article to know the reason behind the crash and the global markets outlook. 

11 October 2018- Dow Jones Industrial Average dropped more than 800 points in one of the worst sell-offs since February. The investors are worried that sharply rising interest rates would constrain the nation’s economic expansion.

All the US stock exchanges recorded biggest losses in 8 months as rising interest rates made investors to run away from risky stocks. The S&P, Dow Jones and Nasdaq index plunged between 3 and 4 percent in a single day of trading. Also, the Tech shares were among the worst affected.

The S&P 500 dropped almost 92 points, the biggest daily loss since February this year. Meanwhile, the Nasdaq Composite index dropped 315.97 points, or 4.08 percent, and the DJIA was down 831 points, or 3.15 percent.

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Why the Global Markets Dropped Sharply?

The major reason for the drop was the higher rates which tend to moderate economic growth and make borrowing more expensive for the US government as well as businesses and consumers. The 10-year US Treasury yield has been rising and is now at 3.2 percent. Currently, the rates reached above the highest levels after the Great Recession.

Moreover, the huge sell-off was seen in giant tech stocks. Netflix was down more than 8%, Amazon went down 6%, and Apple and Google were both plunged more than 4.5%.

Michael Farr, CEO of Farr, Miller & Washington said:

“Clearly, stocks are spooked by higher rates and maybe some inflation that seems to be creeping in. That suggests the Fed will keep raising rates, and that’s taking the wind out of the stocks that have done the most, particularly in the tech sector."

US President Donald Trump blamed the Federal Reserve and his appointee Jerome H. Powellday for the Wednesday’s stock. Also, Trump has previously criticized the Federal Reserve's pace of raising interest rates. He believes going too fast could slow growth and job creation.

Global Markets Outlook

The stock markets across Asia dropped sharply on Thursday morning, with investors following the sell-off in the US markets. Australia’s benchmark ASX 200 dropped almost 2% during the morning trading session. Japan’s Nikkei and Topix Index, the Hong Kong Hang Seng Index, Shanghai Composite Index and the Shenzhen Component Index all lost more than 3% after market opening. The Taiwan Index traded the worst among all the indexes. It dropped almost 5% to a 16-month low.

Moreover, a sharp plunge in Indian Stock markets on Thursday morning wiped off 62 Billion USD of investor wealth within five minutes. As the trading session progressed, the stock market regained its position a bit. The NSE Nifty reclaimed the 10,200 level, but the BSE Sensex was still down by over 800 points.

Additionally, the stocks in the EMEA markets fell more than 1 per cent on Thursday after a sell-off that began on Wall Street. Germany’s Dax index dropped 1.4% to 11,551, France’s CAC 40 was down 1.4% to 5,135 and Britain’s FTSE100 dropped 1.3%.

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