The Dow Jones Industrial Average dropped a whopping 4.6% yesterday, a decline of 1,175 points — the biggest single-day points drop on record.
The plunge has wiped profits for the year.
This is the most significant drop since 24 August 2011, with a 6.6% decline of 1,089 points.
Although, in percentage terms, this is still not as bad as the declines following the Global Financial Crisis. On 6 May, 2010, the market fell more than 9%, a total of 998 points.
When the Australian stock market opened this morning, it saw 2.6% drop almost immediately, echoing what’s happening in the US.
Why did the Dow Jones drop?
The sudden drop was set in motion by increased interest rates and investors reacting to concerns of returning inflation.
Low interest rates that have most recently powered the stock market and economy may be ending as both the economy and job market gain strength.
Although, concerns of a bubble in the market have been speculated on for a while as Dow Jones has continued to set record heights. Many experts are saying the pullback was inevitable.
It’s worth mentioning that everyone is a genius in hindsight. But some have been predicting a pullback or a crash for quite some time. But of course, as it happened everyone comes out of the woodwork to take credit.
Even the analysts who did predict it, weren’t able to specify exactly when it was going to happen.
As reported in the Financial Times, David Kelly, chief global strategist at JP Morgan Asset Management, disagrees that the fall is a result of simple fear:
‘The somewhat untidy but nevertheless more plausible explanation is that both the bond market and stock market were overdue for a correction after a remarkably placid two years.’
If Kelly is right, then this correction could end soon.
However your Markets and Money editor, Vern Gowdie has a different belief. He argues that there are larger, structural issues built into the global economy. Issues that will lead to another crash on the scale of the GFC. And this won’t just affect the US. Vern predicts an Australian recession for 2018. You can find out more about this in his free report ‘Global Financial Crisis 2018’, which explores why a credit collapse could happen.
Contributing Editor, Markets & Money