Yesterday, stocks had their single worse sell-off since 2008. The Dow Jones Industrial Average had its ninth steepest decline ever at 512 points (-4.31%), the S&P 500 dropped 60 points (-4.78%), and the NASDAQ was down 136 points (-5.08%). It
wasn’t just the markets in the United States that got pummeled: England’s FTSE -3.43%, Germany’s DAX – 3.4%, France’s CAC 40 -3.9%, and Brazil’s Bovespa closed -5.72%.
What’s causing this massive sell-off?
In just the past week we saw a weak GDP number that showed that the US was growing at its slowest pace since the end of the Great Recession. We also saw a steep drop in manufacturing from the ISM number (http://www.thestockenthusiast.com/opinion/manufacturing-gauge-falls-to-a-two-year-low/), and on Friday the jobs report is released and most people are expecting the worst.
In addition, there is a growing concern that the economies of Italy and Spain are in serious trouble, due to their excessive debt. Though the European Union was able to give financial assistance to Greece, Ireland and Portugal, Italy and Spain are different because their economies are so massive and their problems are too big to fix.
With all of this going on, investors around the world are fearful of another global recession. This has analysts predicting that a new round of stimulus, or some type of QE3, is on its way. In doing this, the Federal Reserve would try and prevent the effects of another recession – high unemployment, lower housing prices, falling equity prices, etc.
Yet, another round of stimulus could do more damage than good. Though QE2 resulted in a 30% rally for stocks in just eight months, it also increased inflation. As a result, the value of the dollar dropped and prices at the pump and at the grocery store jumped.
Also, many are asking what QE3 would do. The 10 year Treasury bond has already dropped below 2.5% on Thursday, which is just less than half a percentage point above the 2008 crisis low of about 2.04%.
When the Federal Reserve policymakers meet next Tuesday, August 9th, all eyes will be focused on Fed Chairman Ben Bernanke. Though some type of action is not necessarily expected, investors will be closely Bernanke to see if he hints at another round of stimulus.
What do you think? Do you think the Federal Reserve should step in and provide stimulus? Or do you think that Washington DC should stay on the sidelines? Email me at matt@thestockenthusiast.comRich Text AreaToolbarBold (Ctrl + B)Italic (Ctrl + I)Strikethrough (Alt + Shift + D)Unordered list (Alt + Shift + U)Ordered list (Alt + Shift + O)Blockquote (Alt + Shift + Q)Align Left (Alt + Shift + L)Align Center (Alt + Shift + C)Align Right (Alt + Shift + R)Insert/edit link (Alt + Shift + A)Unlink (Alt + Shift + S)Insert More Tag (Alt + Shift + T)Toggle spellchecker (Alt + Shift + N)▼
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Yesterday, stocks had their single worse sell-off since 2008. The Dow Jones Industrial Average had its ninth steepest decline ever at 512 points (-4.31%), the S&P 500 dropped 60 points (-4.78%), and the NASDAQ was down 136 points (-5.08%). It wasn’t just the markets in the United States that got pummeled: England’s FTSE -3.43%, Germany’s DAX – 3.4%, France’s CAC 40 -3.9%, and Brazil’s Bovespa closed -5.72%.
What’s causing this massive sell-off?
In just the past week we saw a weak GDP number that showed that the US was growing at its slowest pace since the end of the Great Recession. We also saw a steep drop in manufacturing from the ISM number (http://www.thestockenthusiast.com/opinion/manufacturing-gauge-falls-to-a-two-year-low/), and on Friday the jobs report is released and most people are expecting the worst.
In addition, there is a growing concern that the economies of Italy and Spain are in serious trouble, due to their excessive debt. Though the European Union was able to give financial assistance to Greece, Ireland and Portugal, Italy and Spain are different because their economies are so massive and their problems are too big to fix.
With all of this going on, investors around the world are fearful of another global recession. This has analysts predicting that a new round of stimulus, or some type of QE3, is on its way. In doing this, the Federal Reserve would try and prevent the effects of another recession – high unemployment, lower housing prices, falling equity prices, etc.
Yet, another round of stimulus could do more damage than good. Though QE2 resulted in a 30% rally for stocks in just eight months, it also increased inflation. As a result, the value of the dollar dropped and prices at the pump and at the grocery store jumped.
Also, many are asking what QE3 would do. The 10 year Treasury bond has already dropped below 2.5% on Thursday, which is just less than half a percentage point above the 2008 crisis low of about 2.04%.
When the Federal Reserve policymakers meet next Tuesday, August 9th, all eyes will be focused on Fed Chairman Ben Bernanke. Though some type of action is not necessarily expected, investors will be closely Bernanke to see if he hints at another round of stimulus.
What do you think? Do you think the Federal Reserve should step in and provide stimulus? Or do you think that Washington DC should stay on the sidelines? Email me at matt@thestockenthusiast.com
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