The Dow Jones Industrial Average dropped more than 400 points amidst a turbulent week. The week came with a late day sell-off and the Dow is being pushed into correction territory as fears of a trade war looms over the stock market, forcing investors to sell before things get worse.
The Dow Jones Industrial Average closed at 23.533.20 last week, nearly 424.69 points down from where it previously stood. The weekly loss amounted to more than 1,400 points, about 5.7%.
The stock gauge was left at a figure of 11.6%, just slightly above the 10% mark needed for correction. The Dow reads much lower than its all-time high on January 26 of this year at 26,616.71.
Several factors drove the decline in the index. President Trump's decision to impose tariffs on steel and aluminum imports has played a major role in spreading rumors about a possible trade war. The proposition imposes tens of billions of dollars on imports from China. The proposition was met by retaliation by the Chinese government which has decided to impose tariffs on a number of American-made goods that enter China. The list includes fruits, nuts, and wine.
Wall Street is being plagued by fears that a major trade war could damage all the chances of a global economic recovery. The proposed tariff plans have given rise to plenty of uncertainty and global stock markets are now under unrelenting pressure.
What is a trade war?
Countries often try to protect their economy and local businesses by imposing heavy tariffs on imports. This, in turn, gives rise to slow GDP growth, low sales on goods like airplanes, wine, and other goods. The companies face shrinking profits.
Business conditions are showing signs of weakening in the event of a trade war and this has Wall Street officials worried.
A trade war can mean extremely high prices for goods and services. This, in turn, means consumers and businesses are bound to have a hard time sustaining in this economy.
The Federal Reserve will be hiking its interest rates this year and inflation can speed up the pace with which interest rates are being hiked. Slow economic growth and inflation impact are calling market conditions into question.
The nine-year-old bull market and the low inflation and low-interest rates that sustained up until now has begun to show signs of crumbling. This means a tighter economy and restricted buying.