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By Kristopher Seals
NEW YORK - As the stock market has been praised for setting all-time record highs, it has now set a dubious record in the other direction.
On Feb. 5, the Dow Jones Industrial Average finished with a record setting loss of 1,175 points. Bear in mind, this was the finish for the day, and was not as bad as it could have been. At one point, the Dow was at a loss of 1,500. All of this followed a Feb. 2 loss of 665.75 points. Within days, the DJIA went from enjoying record setting highs in the realm of 26,000, to dipping below 24,500.
Of course, the NASDAQ and S&P indexes have not fared any better. The NASDAQ took a drop of over 200 on Frantic Friday and Manic Monday, while the S&P has fallen over 4 percent this year. All of this year’s gains in the three indexes have been lost due to this rough patch.
With this in mind, now comes the big question, WHY is this happening? My theory…the GOP Tax Cuts.
Now, you may be wondering, how in the world can tax CUTS cause Wall Street to go in the tank? Simple. Newton’s Third Law.
The Law states, “For every action, there is an equal and opposite reaction.” Contrary to public belief, governments impose taxes on the populace not for the sake of annoying them, but to operate the government, provide services, and also, to keep the nation’s economy competitive.
Here’s the breakdown…On one hand, the GOP Tax Cuts will (according to Trump and the GOP’s projections) have a long-term growth effect on the economy. Conversely, in the short term, the government has less money, because the money that would have been there with taxes at their regular level is now gone due to the cuts.
With this in mind, and high engagement in the market (high engagement does not necessarily mean the Dow Jones has to be in perfect shape) the Federal Reserve is more than likely to raise the key interest rate. This scares investors so much, they want to “Get Out” like Jordan Peele.
Now, they have to choose between protecting their main investments, or taking a chance and hoping the market stabilizes. Here is the problem with that: The Federal Reserve is in flux, as Janet Yellen, the long-time Chairwoman at the Federal Reserve, was recently replaced by Jerome Powell on Feb. 5.
Also, the Fed tends to try and support the Commander-in-Chief and his/her economic policies. In most situations, the Fed’s job is to prevent chaos by regulating what is happening. However, this is the one time that Wall Street is not a fan of a business tycoon.
At a time when a singular, firm economic stance is desired by investors to properly gauge the market, U.S. President and businessman Donald Trump does not have a pristine record when it comes to taking a singular, firm stance on business matters. For example, in some instances he would prefer free range economics and less regulatory red tape, but at the same time, he would like more regulation on companies like Amazon. With this line of thinking, investors are not sure how Trump will affect economic development. By the way, the need to sell is further exacerbated by the possibility of another government shutdown if Congress does not come to an agreement on the budget.
All of this spurs on one of the biggest fears in business: inflation. In the world of economics, inflation happens when there is an increase in the general cost of goods and services in an economy over a long time.
How would inflation happen in this scenario? Well folks, this is the “trickle down” economics the GOP does NOT want you to know about. Here goes: The selloff triggers a slowdown in the money flowing to one group of businesses, which will trickle down to other businesses, who need to sell goods/services to the aforementioned businesses. Because they are getting less from them, in order to meet their bottom line, they have to charge their OTHER customers - YOU - more money.
While this is going on, the other investors who did NOT sell off investments on Wall Street will increase the costs of their goods/services to offset their losses. This will trickle down to other businesses, who need to buy goods/services from the aforementioned businesses. Because they are getting pinched by them, in order to meet their bottom line, they have to charge their customers - YOU - more money.
Again, this is just my own theory. I cannot guarantee what is happening with the market, as I am not in charge of the trades being made. My qualification to make this analysis is a Master’s Degree in Business Administration, so I felt that I could lend a hand in helping people understand why this is happening.
Oh, and to anyone saying the government should “just print more money” to fix everything, our currency would be devalued on the global scale, making our goods and services less valuable, therefore putting us in a less than favorable trade position, which ultimately results in things worse than what was discussed in this article.)