Stocks throughout the United States have fallen significantly since the trading began this morning. Although the drops are incredibly sudden, has this event been a long time in the making, or are today's events unexpected?
Over the past several months, economists and traders have expected the Fed to cut rates. Rate cuts create significantly more investment in economies because, put simply, the price of money is lower. When businesses invest more, they create more jobs for the United States economy, and overall production goes up. Almost inevitably, the United States had a disastrous jobs report last week, and many blame the Fed for refusing to increase their rates.
Regardless, the United States government is one of many moving parts. Six days ago, the Japanese government increased interest rates from a range of 0% - 0.1% to .25%. Although these rates are minimal compared to those of the United States or other developed countries, the Japanese government's recent decision has more than doubled the country's previous rates. In addition, this is only the second time that Japan has increased rates since 2007. Japan's Nikkei index decreased in value by over 12% as a result of this rate hike. Investors, however, are not only worried about the current rates but are also concerned about the possibility of future hikes.
In addition to changes in interest rates, or the lack thereof, some investors credit the downturn to a perceived "AI Bubble." Similarly to the dot-com bubble, many believe that tech stocks have become significantly overvalued due to the hype that AI has caused. Therefore, they are now seeing falling prices to readjust the market.
Despite the number of possible reasons for this downturn in stock prices, I remain hopeful that this sudden downturn does not serve as the beginning of a recession. Let's stay optimistic and keep a close watch on the market.
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