It is known to many investors (old and new) that Dow Jones Industrial Average is simply a stock market index. Again known as Dow, the Dow Jones Industrial Average is founded on thirty large publicly traded companies during any given trading day. The phrase Dow stock is used by both investors and media to explain the general health review of the entire stock market. This article is about the reason for the fall of Dow Jones Industrial Average.
The 4th of December 2018 was marked by a drop down of the Dow Jones Industrial Average and an assertive market sell-off diminished all the hope for a comeback. On the previous day, there was a moderate stock rebound, and the investors were left contemplating why the Dow Jones Industrial Average was down the following day. Some days before this happened the White House had declared a short-term truce between the United States (US) and China who are known to be trade rivals. However, since the truce was communicated, the American government has moved on quickly offering definite details displaying how China conceded at the G-20 summit.
The US decided to hesitate on the warning they had issued to China regarding raising the tariffs on their products. Nonetheless, the statements from two delegates of the nations hinted that the negotiations ended with few agreements. What followed was confusion with the Trump administration and the White House economic advisor issuing out contrasting statements on when the hold on tariffs would begin. The discrepancies made investors ponder if there will be harmony between the two countries in the near future. The belief of the investors has dropped down because of this, and marketers are concerned about the possibility of a recession.
During the same day, the yields of the 10-year Treasury bonds fell to the lowest level in a period of ten years. Although the yields for the ten-year bonds have been fluctuating over time, the investors are bothered this time since it has caused flattening of the bond yield curve. This means that the yields of two-year bonds and the ten-year bonds will fall. Moreover, it implies that there will be a reduction in inflation and the rate of betting interests in the next decade. These are signs of a recession because they are considered default financial atmosphere.
In the end, the stock market usually does not go into a phase of competitive sale-off until the yield curve rebounds. This implies that the ten-year Treasury bond yields drop below those of two-year bonds.