tr83
Nope, still embarassed
Forgive my financial ignorance, but I have absolutely no idea what points mean. Is this abnormally bad? what's causing it? The stock market is one of those things I know absolutely nothing about somehow.
The Dow Jones is a conglomeration of 30 companies. This used to be the representation of the market, however since the corporate landscape has changed and the Dow hasn't kept up, it isn't the one in which traders don't compare their results to anymore. That belongs now to the S&P 500, which is an index of 500 companies. This is a better representation of the US corporate landscape. This is what traders compare their results to (the benchmark).
A dollar doesn't represent a point. That's because of the manipulation a company can do to it's stock price: A company can issue (float) more shares, buyback shares, split shares to make the share price more attractive to buyers (instead of 1 share = $50 a company can say 10 shares will = $5).
Think of it as reselling tickets you have for a concert. When you bought the seats, there were only a certain number of seats available to concert goers. The venue could add (float) more seats, remove seats, or say that the band is going to play 20 songs over 5 nights instead of one meaning your two tickets have become ten tickets, but the value is the same.
Because of this manipulation, the share price is divided by a particular number called a divisor. The divisor is a number based upon everything I mentioned in the last paragraph.
TL;DR: Points represent a certain dollar amount.
What's causing the stock market to crash now are a couple of things. Primarily, it's China. China's market crashed a few weeks ago, but this was a result of a lot of Chinese investors borrowing money to gamble in their market. When the market goes down, the creditors demand borrowers raise money (sell stock) so the borrower can repay the debt. The result is an amplification of the selloff.
China has pretty much done all it can over the last 20 years to build the infrastructure necessary to compete on a global scale. The Chinese have pretty much ordered their companies to borrow money to build. The Chinese stock market is only open to the Chinese, not to direct foreign investment, which is why so many Chinese stocks are on the New York Stock Exchange and other World exchanges. While we hear that the country is doing wonderfully holding so much US debt, corporate Chinese debt is almost 200% of income (Their spending twice as much as they earn). The debt is predicted be as high as 300% in 10 years. The problem is that in order for China's economy to be self sustaining, their citizens have to become ravenous consumers. That isn't happening. Furthermore Chinese investments aren't returning what they hoped. To help their companies compete, they have devalued their currency which makes domestically made goods "cheaper" and foreign goods "expensive." This also "hurts" the value of the dollar as the dollar is getting stronger (our goods are more expensive overseas making them hard to sell). If the dollar gets too strong, it could hurt our employment figures (Can't sell = less money = layoffs).
Because many companies in the US depend on Chinese consumers, they are getting shellacked. The market is correcting the values of some of these companies
Many see this as a trade war. US companies are having a harder competing in China. The Chinese also want their currency (the Remnimbi) to become a reserve currency like the Dollar, Euro, Pound, and Yen. (It's a global "respect" that allows them to borrow cheaply) That was going to be likely until their market tanked. They're doing everything in their power to prop their markets up and keep themselves on track.
The summer is considered the slow season in the US for most consumerism. Analysts who follow companies will ramp up their forecasts over the rest of the year only to see them fall short. As a result, people see this as a reason to sell.
Lastly, people are still worried about the health of the American economy. Right now, it is the only one in the world working, relatively. The worry is are people making enough money to support it. Some say yes: People are buying houses and cars, renting apartments, and employment figures are healthy. Other say no: The government isn't reporting accurate employment figures, student loans are too much of a burden on Millennials, labor participation rates are at a 40 year low, and wages aren't increasing.
The fear is a repeat of 1937. When it looked like the US was out of recession only to raise interest rates too soon and causing the market to recess again. The Fed is walking a hell of a tightrope.
Lastly, what triggered the worry in the US market is that a big chunk of the S&P 500 are media companies. Disney (ESPN) basically said they're worried about cord cutters. Since half of Disney's profits depend on people subscribing to cable to pay for the NFL, NBA, and MLB, that could whack profits (part of the reason most of the major ESPN personalities are being axed left and right). This affects CBS, AMC, Time Warner, Comcast, Cablevision, etc. too
The market is down over 10% from it's highs making this an official correction. History says it's healthy for a market to do this usually once a year. The market hasn't done this in a while because of our stock market crash 7 years ago. The stock market has gotten back to the level that it would have been had the market not crashed years ago.
It gets more complex, but it's a hockey board after all.
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