What's going on?
Stocks around the world had a bad day on Wednesday, with those in America posting their biggest drop since September – and investors seemingly blamed turmoil in Washington.
What does this mean?
It’s no secret that President Trump is facing domestic political difficulties stemming from his firing of the Director of the FBI. As his problems deepen, investors are getting increasingly nervous that these will delay, or possibly derail, pro-growth initiatives like tax reform.
But it’s not necessarily all about politics. The US economy hasn’t been able to keep up the momentum it had at the turn of the year. That’s helping to convince investors to reevaluate their expectations for US growth (and, by extension, the profits that companies doing business in the US can potentially make this year).
Why should I care?
For markets: Stocks have retreated from an important “barrier”.
As we wrote two days ago, US stocks have been trying to decisively break through the high that they hit on March 1st – but have now fallen back without doing so. That sort of thing often matters to traders and can exacerbate short-term negativity (if you watch a pole vaulter fail four times, are you going to bet on him making it on his fifth attempt?).
The bigger picture: This could just be a bunch of noise.
Stocks do not go up in a straight line – ever. It is entirely natural for stock prices to “pull back” before they, once again, move higher. Also, turmoil in Washington historically hasn’t tended to have an enduringly negative impact on markets. There are certainly risks to stocks right now. For one thing, stock prices have moved up so dramatically in the past year that investors are likely asking whether they’ve got ahead of themselves. But there are also reasons to be optimistic: for example, companies’ profits are increasing at a faster rate than in previous years. One day of declines is just that: one day.