On Monday, the Dow Jones Index fell by 1,033 points, a 2.6% drop. It was difficult to watch, especially since there wasn't a single apparent reason for the market panic. The most likely cause was the 12% decline in the Japanese stock market, followed by Warren Buffet, the Oracle of Omaha, selling 50% of his Apple and 10% of his Bank of America stocks.
Japan’s Nikkei Stock Index Plummets 12%
Japan's market opens before the US markets, so traders use it to help determine their trading strategy for the day. The Bank of Japan raised interest rates, strengthening the yen, which hurt the "carry" trade. A carry trade is a financial strategy in which an investor borrows money at a low interest rate and invests it in assets that offer a higher return. The goal is to profit from the difference between the cost of borrowing and the return on the investment. Here is a video to help explain what is happening.
Oracle of Omaha
Warren Buffet, the greatest investor of all time, can influence markets with his words. Investors are curious why he has sold 50% of his Apple shares and 10% of Bank of America. This is a significant move for Buffet as he is known for being a buy-and-hold investor. His cash pile has now reached $277 billion. There are speculations that Buffet might be preparing for a major recession, looking to acquire a large company, or planning for potential increases in corporate tax rates.
Unemployment
The US unemployment rate is rising, casting doubt on the economy's anticipated "soft" landing. In January 2023, the unemployment rate stood at 3.4% but climbed to 4.3% by July 2024. While unemployment rates under 5% are generally not a cause for concern, the upward trend is worrisome. Additionally, the Federal Reserve Bank has been delaying rate cuts, causing investors to lose confidence in the central bank's ability to orchestrate a smooth economic transition.
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