Starting with the event-packed sell-off on tech stocks on August 2nd and 5th, the sharp moves in the stock market have many investors worried about the reasons behind the turmoil. With increasing talk about a recession in 2024 and rising concerns about the strength of the American economy sparked by an underwhelming jobs market report, investors are closely watching what the Federal Reserve’s next move will be.
So, what exactly has been happening? August has not been short of drama in the stock market, and there are no signs of slowing down. From nerve-wracking volatility to the collapse of the Japanese Yen carry trade, investors have been grappling with a series of shocks rippling through global markets. Nonetheless, experts advise investors that it’s the best time for investment, especially in longer-term assets.
Stronger Japanese Yen Rates Severely Unwinded Popular Trades
A key reason the global stock market took a nosedive at the beginning of August 2024 is the increased Japanese Yen interest rate. After nearly two decades of negative Japanese Yen interest rates, the Bank of Japan finally raised its cost of borrowing, reducing the gap between the Yen and the dollar.
As a result, the stronger Yen threatened popular carry trades, which is where investors borrowed at low-interest Japanese Yen rates to invest in higher-interest currencies like the US dollar to get a cost-free profit. Do note that the cost of borrowing the Japanese Yen was around 0.1% before. But now, having increased to 0.25%, the stronger Yen caused a violent stir across global markets as Japanese stocks sharply fell, leading to the violent moves experienced in early August 2024.
Low-Risk Investors Attempt to Take on More Risk
Another factor in the recent stock market turmoil, partly caused by the description of the Yen carry trade, is the need for riskier investments. With the Federal Reserve’s attempt to keep interest rates aggressively low since the 2008 housing crisis, many investors have been unsatisfied with the low returns from less risky investments like money market funds.
Plus, when rates were cut to less than zero in 2020 – 2021, borrowing cheap became a trend on the stock market. However, that was short-lived, as the Federal Reserve increased its rates dynamically in 2022, forcing investors to shift to safe investments as the riskier bets were put under pressure. Now, with Japanese Yen interest rates hiked, investors have no choice but to seek greener prospects, even if that means embracing more riskier investments for better returns.
Increasing Concerns About the Global Economy’s Sustainability
As global economies gradually recover from recession, more and more industries are incorporating emerging technologies to address changing consumer needs. In fact, gambling is among the thriving industries in the world as people seek affordable yet thrilling means of entertainment.
More specifically, playing at online casinos for real money has surged globally as operators provide thousands of casino games at the player’s convenience. Better yet, the potential to win real money rewards, claim lucrative deals, and the chance to enjoy lifelike casino gameplay through live dealer games makes the online casino experience that much more enticing.
Nonetheless, despite the success of various industries like gambling, many investors are still worried about whether the world may experience a recession in 2024. With the labor market in the US, one of the world’s largest economies, recording a slowdown in July 2024, many question the sustainability of the current economic recovery status. In fact, a majority of investors have cut back from making risky investments as rumors spread that the Federal Reserve is soon going to reduce interest rates.
August’s Stock Market Drama Might Be Market Correction
Despite the recent stock market turmoil sending chills to investors the world over, some experts believe it was a mere market correction. Evidenced by the market’s gradual recovery, especially when considering the Magnificent 7 tech stocks, this period of volatility may just have been market recalibration after months of robust gains.
Nonetheless, it’s still a bit too early to tell whether investors subdued too early to selling pressure or whether the sharp moves are a warning sign of what is coming. So, better stay cautious and keep an eye out for emerging events, like the US elections, to accurately gauge the sustainability of recent market gains as well as the health of the global economy.
