The Dow Jones is one of the major market indices in the New York Stock Exchange and it has been down by a whopping 1,800 points or approximately 7% in just a matter of two days.
It is important to note that Dow Jones, being one of the major players of broking system, affects nearly the entire stock market. Because of its fall by a sizable number of points, shareholders are panicking and selling their stocks as quickly as possible.
But, do not worry too much. You see, even though the Dow suffered a noticeable loss, it is still below Market Correction standards.
It will only be called a “Correction” if a particular index suffers at least a 10% loss. What happened to Dow, albeit still noticeable, is not called a Correction since it didn’t reach the threshold.
However, any loss of this magnitude would initiate a market panic that makes everything chaotic. The stock market is basically going bearish and the investors do not know what to do.
Let’s take the Dow fall down as an example. In just one year, the Dow has experienced a huge jump as it gained 26% percent of market average. Most other markets experience only 8% total growth, so what the Dow experienced was actually three times that average.
Because of this, it would be deemed “normal” that it will fall, considering its meteoric leap in just a year’s time.
The Economy is NOT the Stock Market
Some experts believe that the US economy has something to do with this. Since the new president took the office, the country has experienced an all-time low in unemployment rates.
Hiring power has become stronger and company growth is almost assured. But it is also because of this that company share prices are affected since the more people an organization hires, the more resources they would have to spend just to do it.
But again, it is worth repeating that the economy does not affect the stock market in an impactful way. It just means that it could be a possible determinant of how the market performs, but it doesn’t directly correlate to the market shift.
Every economy experiences inflation and it is actually a good sign that a country is growing in power. However, as the saying goes, too much of something is bad.
In this case, if there is too much inflation (like in Valenzuela), their currency has been deemed useless and their economy starts to crumble.
What happened to the Dow is not due to inflation as the country’s inflation rate is just a measly 1.7% percent, which is still in its healthy levels.
Watch Out for the Feds
However, even though inflation, per se, doesn’t heavily impact the stock market, the federal reserve might increase the interest rates which would lead to investors not spending their resources for the time being; forcing the stock market to stay at a standstill.
What I am really getting at here is that what happened this year is not a market crash. By definition, a market only crashes when there is more than 20% fall rate that happened in a few days.
The 7% loss that the Dow has experienced is not even near what is called the “Market Correction”, so there really is nothing to worry about at this time.
With a growing economy, the US Stock Exchange will be okay in the near future. Inflation and interest rates might rise, but not to a degree that can severely affect the stock market.