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Last-minute drama on Wall Street: what caused the sudden shift? โ ๏ธ
From a day that opened positively with tailwinds from global markets, we shifted to declines within minutes. ๐๐
So what exactly happened on the screens? ๐ฌ
The indices changed direction: ๐ฏ
- The S&P 500 index fell by 1.2% ๐ฝ
- The Nasdaq lost about 1% ๐ฝ
- The Dow Jones plummeted by no less than 1.8% ๐ฝ
The reasonโ
Deep concern about the health of the American economy, and especially about the federal deficit making headlines. ๐ฃ
What is a deficit and why does it stress Wall Street? โน๏ธ
The deficit is essentially the gap between what the government spends and what it takes in (mainly from taxes). ๐งฎ
When expenditures significantly exceed revenues, the government needs to borrow money, meaning it issues bonds. ๐งพ
But here's the problem: โ ๏ธ today the US tried to sell $16 billion worth of 20-year bonds, and found that investor appetite was very weak. โ๏ธ
To entice buyers, the government had to offer a yield higher than 5%, and that is a warning sign. ๐ซ
Reminder: bond yield = interest the government pays. ๐ซด
When there is no demand, it has to pay more. ๐
And when that happens, investors ask: โ "If even the American government is struggling to raise money, maybe something here is about to explode?" ๐ฅ
So what's happening now? โถ๏ธ
The dollar weakened because investors are fleeing risk โ
Bonds are falling due to oversupply and lack of confidence โ Markets are reacting with declines because the atmosphere is becoming cautious, to say the least ๐ฉ
When the bond market signals distress, the stock market does not remain indifferent. ๐
The US's status as a 'safe haven' suddenly feels a bit less secure. ๐จ
The rest of the week will be under a magnifying glass, with eyes on Washington, the deficit, and perhaps the Fed will finally act... ๐
In any case, we continue to monitor ๐
Are we headed for a more significant correction?
Or will retail investors buy aggressively again? ๐ก
We'll know soon ๐