As often occurs, after a big market move, Wall Street traders offered up several explanations for what happened to the stock market on Wednesday.
One has to do with President Trump’s trade war with China. While the Trump administration has been talking about China for months, it upped the ante in late September by slapping a 10% duty on $200 billion worth of Chinese consumer goods. The China tariffs are expected to jump to 25% in January. The trade stand-off could hurt both the U.S. and Chinese companies, by raising production costs and crimping consumer spending. As the U.S. stock market dropped this week, China’s two main stock markets were hit even harder, with Shenzhen tumbling 6.5% and Shanghai down 5.2.
The trade war wasn’t the only thing investors were reacting to, however. Also in late September, the U.S. Federal Reserve raised interest rates for the third time this year. Those moves are meant to head off inflation, which has been finally beginning to tick up as the U.S. economy gains steam. Since the Fed’s rate hike, 10-year Treasury yields, which spent much of year below 3%, have jumped to nearly 3.2%. Higher interest rates hurt stocks by making bonds a comparatively more attractive investment, and by making it more expensive for companies to borrow and invest.
Read much more about the drop at Time