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Stocks and other financial markets in sharp decline

By Masao Suzuki |
November 21, 2018
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San José, CA - On Tuesday, November 20, stocks and other financial markets staged a broad retreat. Stocks tumbled for a second day in a row, wiping out virtually the gains for 2018. The broad S&P 500 index of 500 large corporate stocks fell 1.8% and is now down 10% from its record high set in October. But the downturn went far beyond the stock market. Oil prices fell more than 6%, while corporate bonds also fell, pushing up interest rates. Bitcoin prices took another hit, falling to $4200, almost 80% down from its high less than a year ago.

Despite record corporate profits boosted by the Trump and Republicans’ corporate tax cut, the markets are looking at a perfect storm of economic problems. The Federal Reserve, the U.S. central bank, is raising interest rates, pushing down corporate bond prices. This is turning off the tap of cheap credit that fueled corporate profits. The housing market is showing growing signs of weakness as rising prices and mortgage interest rates make homes more and more unaffordable. Big corporations such as Apple, General Electric and Target are reporting disappointing sales after years of strong growth.

It was not just the U.S. stock market, as stocks lost ground from Asia to Europe to Latin America. Economic weakness is showing in both Japan and Germany, the second and third largest capitalist economies, which both contracted in the third quarter (July to September) of this year. There is increasing concern over the Trump administration’s escalating trade war with China, which is throwing a wrench into the increasingly globalized economy.

There are growing worries that the weaknesses across many financial market may be signaling an economic slowdown next year. There are also other signs, such as growing debt problems among U.S. households that may signal fewer purchases in the future.

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