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Many Factors Drive Stock Shock

November 5, 2018

|Daniel A. White

Stocks have taken a big hit lately, and we’re all left wondering why.

The Dow Jones Industrial Average hit an all-time high on October 3, climbing to 26,950. Since then, it’s been sharply lower and there are a few major reasons behind the tumble.

One is increasing concern about a global trade war. Firms are concerned about tariffs and other effects of President Trump’s agenda, even though most of the tariffs don’t go into effect until January 2019.

The market also didn’t like the International Monetary Fund’s global growth forecast cut. The IMF cited trade angst and stress on new markets as reasons, while also downgrading the U.S. economy’s prospects for both 2018 and 2019.

Another factor is crude oil prices increasing by 19 percent. That’s been good for some economies, however, the International Energy Agency says high prices because of falling supply are risky for the global economy.

As you can guess, stocks don’t like that.

Investors are also reallocating their portfolios by selling past winners to take advantage of opportunities in the market. Of course, this hits index stocks’ favorite picks the most as investors move out of growth stocks and into cyclical and defense stocks because cheap shares do better when interest rates rise.

Internationally, Europe is worried about the sustainability of Italy’s debt. Spending continues on campaign promises while yield spreads continue to widen, sparking fears of a recession.

And lastly, the 10-year Treasury note surged to its highest yield since 2011. It went from 2.8 percent in September to 3.25 percent in October, meaning investors want safety.

Now, is this a pullback or the start of a bear market? Nobody knows. We’ll have to wait and see.

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