Wall Street volatile as global economy becomes “fragile”
19 October 2018
Volatility has continued on Wall Street following two days of major falls last week. The Dow Jones index shot up by more than 500 points on Tuesday, followed by a more than 300-point decline during Wednesday before recovering to finish 80 points down.
Yesterday, after a global sell-off, the Dow finished down by 327 points, after dropping 470 points during the course of the day. In what was described as a “jittery session,” the S&P 500 was down 1.4 percent, its largest fall in a week, and has now experienced a decline in 10 out of the 14 trading sessions this month.
The immediate volatility is being driven by two conflicting tendencies. On the one hand, US markets are being pushed down by the further expected increases in the Federal Reserve’s base interest rate and the general tightening of monetary conditions expressed in the rise of the rate on the benchmark 10-year US Treasury bond, which is now hovering around 3.2 percent. Monetary conditions are also being made more restrictive by the Fed’s reduction of its assets holdings by $50 billion per month as part of its program to reduce its balance sheet. Its previous quantitative easing program saw Fed assets expand from less than $1 trillion to $4.5 trillion.
On the other hand, share prices are being boosted by the rise in profits being reported by banks and major companies. There is also an expectation that US growth will continue and that, while asset valuations may be “stretched,” there is still some way for the market to run and gains to be reaped.
The underlying instability and fears of a major sell-off were underscored by further comments by US President Donald Trump following his denunciation of the Fed’s…