Why the stock market just dropped
On Tuesday, the US stock market opened by plummeting, with the S&P 500 dropping into negative territory for the year.
Why?
Scott Wren, senior global equity strategist at the Wells Fargo Investment Institute, points to two main factors: A rapidly strengthening dollar and fears that the Federal Reserve will raise interest rates sooner than expected, stoked by comments by outgoing Dallas Fed president Richard Fisher.
But Steven Englander, global head of G10 foreign exchange strategy at Citigroup, is less certain. He points out that interest rate fears have been significant since late February, when Fed vice chair Stanley Fischer told CNBC a rate hike this year was highly probable. “We’ve gotten used to thinking of a zero interest rate as normal,” Fischer said. “It’s far from normal.”
As for the dollar, it did rapidly strengthen overnight, but the initiating event is a bit of a mystery. “Why this sort of realization hit the market at around 8 p.m. New York time or 8 a.m. Asia time is a bit of a puzzle,” says Englander. “Because I’ve checked with colleagues and there’s no real news.”
An article in Bloomberg suggested a slump in the Euro and Yen was prompted by a sell-off the New Zealand dollar, or “kiwi,” after threatening letters were sent to dairy producers there.
“The little kiwi that roared?” asks Englander. “I don’t think so.”
But when it comes to the origin of a market move, it’s hard to definitively rule any explanation out.
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