Hopefully you aren’t living under a rock and know that the stock market is plummeting. If you are living under a rock, here’s your chance to relocate!
Yea the stock market is dropping. A lot. What does this mean for you?
If you are young, have a lot of years left to work, then this is not scary. In fact, the drop in prices is a good thing. You should try to buy into the market now while the prices are cheap! More on this on another post.
If you are older, trying to retire in the next few years, then this is not good news. This age group probably has a lot of their retirement savings in the stocks. The market will regain its value and climb back up to normal values. No one knows how long that will take though.
So why did the market drop? Though there was no one clear reason to cause panic on Wall Street that caused investors to sell their stocks suddenly, speculators have a few reasons to explain this.
- Fear of raising interest rates – This is because companies are doing well so they are hiring more employees and paying them well. To pay them well, companies are spending more money which means they have to raise prices to still make a profit. When prices rise, then the Fed increases interest rates which in turn makes companies less profitable and their stocks worth less.
- New Fed Lead – Janet Yellen, the previous chair of the Fed, is being replaced by Jerome Powell. Since no one knows how he will act as the new Fed chair, it is causing some anxiety on Wall Street and that usually translates to stock fluctuations.
- Inflation – A little inflation is okay as it can signify a healthy economy. Too much inflation causes interest rates to increase which cycles back to number 1.
- Trump’s new tax law – The new tax law decreased corporate taxes which leaves the US government with a larger deficit. When the government needs to borrow money, interest rates increase.
These are the main reasons highlighted, there are more details in each answer that we won’t go through now. Any comments, questions or suggestions? Leave a reply below!