Although the markets appear to be correcting, the aftermath of Black Monday is certainly a messy one.
Black Monday saw the New York Stock Exchange implement Rule 48, meaning that stocks were allowed to open without any price indications.
As could be expected from such dramatic events around the world, theories and speculation abound as to what exactly are the causes behind all of this.
Although these ideas should be taken with a grain of salt, today we are going to explore a few different theories about Black Friday to try and shed some light on what exactly is happening behind the scenes.
- Oil Hit a Six-Year Low
Last week saw the price of West Texas Intermediate fall to around $40 per barrel with Brent Crude sitting around $45 per barrel.Just about all of the oil-rich nations saw huge losses after Black Monday, including countries like Dubai, Qatar, and Saudi Arabia.We would theoretically expect the big fall in oil prices to have a neutralising effect on the stock market in the end.Nevertheless, these low prices have provided the stimulus of more than $1 trillion to the global economy, and this can actually help to prevent falling stock prices from having more of a deleterious effect around the world.
- The Chinese Stock Market Seems to be Heading for a Crash
With the Shanghai Composite seeing its worst losses since 2007, the Chinese government has been in a frenzy trying to conjure up ideas such as devaluing the yuan as a means of alleviating the concerns of investors.The massive leveraging of toxic assets has in part led to the current situation, and now that pension funds are allowed to invest into the stock market for the first time we have to wonder if the Chinese markets could be headed for a crash.The global implications of this could be dire indeed.
- The Bullish Market is Simply Correcting Itself
The stock market has been seeing steady gains over the last six years, with prices consistently increasing.With the poor returns offered by US bonds, not to mention the real estate market crash, investors have looked instead towards stocks, leading to a six-year bull market.Of course a rally such as this can only last so long, so perhaps what we are seeing is a correction that may be followed by a bearish period.