The recent turbulence in markets on Wall Street and in Asia has caused a stir among investors, but there are signs of stabilization on Tuesday. After a mini-panic that spanned from late last week through Monday, the S&P 500 and Nasdaq are each up 1.3% in morning trading, aiming to break a three-day losing streak. The Dow Jones Industrial Average is also up 0.7%.
In Asia, Japan’s Nikkei 225 saw a significant jump of 10.2% on Tuesday, following a 12.4% sell-off the day before, which was its worst performance since 1987. The rebound in Tokyo stocks was attributed to the stabilization of the Japanese yen against the U.S. dollar after several days of sharp gains. The turmoil was further fueled by a rate hike by the Bank of Japan, disrupting trades involving borrowed Japanese yen.
The recent market volatility can be attributed to several factors. Firstly, concerns about a slowing U.S. economy emerged, with investors pointing fingers at the Federal Reserve for potentially waiting too long to cut rates. This led to a sell-off in technology companies that had seen inflated stock market valuations due to the artificial intelligence frenzy.
Despite the sell-off, calmer voices are prevailing, suggesting that the correction was necessary as stock prices had risen too high. Some of the technology companies that investors fled from are now seeing gains, such as chipmaker Nvidia, which was up 3.8% on Tuesday morning.
Experts advise individual investors not to make rash decisions but to ensure their investments are properly diversified. The recent turbulence in markets can be attributed to factors such as inflation and central banks, anxiety over the U.S. economy, concerns about Big Tech stocks, and Japan’s rollercoaster market performance.
While the prevailing wisdom is to hold steady and take a long-term view, some investors may be tempted to panic sell on red days. However, history has shown that markets have recovered from worse sell-offs than the current one. It’s important to remain calm and avoid making impulsive decisions.
Bitcoin, the world’s largest cryptocurrency, also saw fluctuations during the recent market turmoil. While it did serve as a safe haven during the pandemic, it behaves like any other risky asset during market downturns.
Overall, sell-offs in markets are normal occurrences, with a 10% pullback happening on average once every 12 months. Investors are advised to wait out the current wave of turbulence, as pockets of opportunity often arise on the other side of the storm. As August and September give way to a calmer seasonal period, it’s important to remain vigilant and patient in navigating the market fluctuations.