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Stocks Crash!!! Lost 1,175 Points – Computers Help Wiped $1 Trillion In 3 Days



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Feb 06 2018
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Where is Donald Trump when we need him the most (*grin*)? Shouldn’t he take credit for the market plunge, the same way he bragged about a bull run under his watch? Obviously even the U.S. president couldn’t stop a flash crash, as what happened on Black Monday. After Friday’s 666 points crash, Monday saw Dow performed a free fall – dropping a whopping 1,175.21 points.

 

At one point, the DJIA (Dow Jones Industrial Average) posted a drop of 1,600 points, before staging a quick recovery. Investors were seen rushing to the exits in droves. Even the so-called “brave-heart” experts and analysts were flabbergasted at the 4-digit losses. They had screamed the Friday’s 666 points loss was a healthy correction. Now, they aren’t too sure.

 

The Monday’s selloff was incredibly volatile and fierce that by the end of the day, the Dow had travelled more than 5,100 points during the session. The Dow also broke below 25,000 and effectively erased its 2018 gains. Art Cashin, UBS director of floor operations at the New York Stock Exchange, said – “Breaking the early lows of the day means the correction could go on for longer.”

US Stock Market Crash - 1175 Points - Trader Reaction 2

To make matter worse, the S&P 500 pulled back 4.1% – its biggest one day decline since August 2011 – to close at 2,648.94. Giving back all of its gains for 2018, the S&P 500, a stock market index based on the market capitalizations of 500 large companies, also broke below its 50-day moving average – a key technical level which when triggered would create violent volatility.

 

If the trends continue, the next technical level would be the bearish 200-day moving average. While some consoled themselves that the stock markets just need to take a breather, others blamed the Federal Reserve for the flash crash. It’s hard to see how Tuesday could create a meaningful recovery from the Friday and Monday’s spectacular tumbles.

 

The markets are still spooked with the prospect that the Fed could raise interest rates more than the 3 times it forecast for this year. The only good news is the U.S. Treasury bonds didn’t skyrocket but instead made an unusual turnaround. The bench mark 10-year Treasury yield plummeted to 2.70% from a 4-year high of 2.88% reached in morning trading.

US Treasury Notes Bonds - IOU Debt Paper

The declining of Treasury bonds’ yield, or simply I.O.U. debt papers, indicates that the Federal Reserve could chicken out from raising interest rates 4 times for 2018. But considering it’s still early of February, the Fed has lots of time to decide how many times it like to jack up the rates. Coincidently, new Fed Chair Jerome Powell was sworn in on Monday.

 

Ironically, panicked investors rushed to the safety of bond markets, the very same market that started the crash in the stock markets. Perhaps it’s still too early but for now, nobody thinks the stock market is heading into a bear market, which would be a 20% decline. However, Sam Stovall, CFRA chief equity strategist, thinks S&P 500 could go “near its 200-day moving average”.

 

Besides blaming overdue correction, Federal Reserve and even the swearing in of Jerome Powell as the new boss of the Fed, investors have also found a new culprit to blame – computers. Apparently, the brief 1,600 points drop was blamed on computer-programmed trade set to dump shares at certain levels (such as Dow’s 25,000 and 24,000), which explains a sudden accelerated selling.

US Stock Market Crash - 1175 Points - Terminal

“It’s just all electronic trading right now. There’s no kind of panic on my desk right now. It’s just falling out of bed. It’s crazy. We broke the 50-day. All the machines triggered. People pulled bids, and that’s what created that air pocket. There was also a big put spread bet, which might have spooked people. Some body bought a lot of puts betting the market would go down.” – said trader Scott Redler.

 

But the party won’t be fun without blaming the man who started the Super Bull Run in the first place – President Donald Trump. As the S&P 500 losses over US$1 trillion in market value in just 3 trading days into February, Trump’s biggest victory – tax cuts – becomes the latest casualty in the finger-pointing game. His legislative accomplishment may end the 9-year stocks bull run.

 

The lowering of corporate tax rate to 21% from 35%, which Trump signed into law in December, could be too sexy a tool for the American economy. Some argue that with jobs markets near full employment, flushing the country with tons of money while increasing national debt at the same time will increase inflation hence the recipe for disaster.

Stock Market Crash - Donald Trump

Even crude oil prices were pressured down after Monday’s crash. The White House could only say it was worried about the U.S. stock market drop but insisted the fundamentals of the U.S. economy remains strong. Former Federal Reserve chairman Alan Greenspan predicted both inflation and interest rates will surge higher as a result of the country’s growing national debt and budget deficit.

 

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