US stocks markets are on the road to recovery after a brief flash crash on Monday afternoon that saw the Dow shed more than 1,500 points, a large chunk of which occurred in a very short period of time.
Naturally there is a lot of questions being asked about the role of automated trading in the collapse and I’m sure the discussion will happen over the coming days but the important thing is that markets have recovered from the initial shock. The Dow and S&P continue to trade significantly lower on the day, off 3% at the time of writing, and could remain vulnerable in the near-term.
With this being the second consecutive session in which we’ve had heavy selling, traders are looking for reasons for the decline and whether further downside is to come. Higher yields on the expectation that interest rates will rise faster than expected has been blamed until now and could be responsible for what will hopefully prove to be a brief and healthy correction.
Still, this is unlikely to be what Jerome Powell was hoping when he started his tenure as Fed Chair and already people are asking questions about whether investors were getting ahead of themselves in expecting three or more rate hikes this year. Once the dust settles we’ll surely have a much better idea of whether higher rate expectations are truly to blame for these suddenly shaky markets and a storming return for volatility.
Disclaimer: This article is for general information purposes only. It is not investment advice, an inducement to trade, or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. Ensure you fully understand all of the risks involved and seek independent advice if necessary. Losses can exceed investment.