Chief economist explains stock market slump Will it soon be up again after the crash?
The Fed's interest rate policy and disappointed expectations and uncertainties surrounding Donald Trump's inauguration are causing the stock markets to stumble. However, expert Daniel Kalt sees long-term potential for a recovery.
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- The Federal Reserve's interest rate decision has sent the US stock market into a tailspin.
- The Dow Jones slumped by 2.6 percent and the Nasdaq technology exchange fell by 3.6 percent.
- Daniel Kalt, Chief Economist at UBS Switzerland, knows the reasons behind this.
The US stock markets experienced a crash yesterday that even experienced investors rarely experience. The Dow Jones lost over 1000 points, while the technology-heavy Nasdaq slumped by 3.4 percent.
This slump was triggered by disappointing economic data and the US Federal Reserve's announcement that it would reduce the pace of interest rate cuts in the coming year. This news hit interest rate-sensitive tech stocks particularly hard.
The chief economist at UBS Switzerland, Daniel Kalt, says: "I would not yet call a fall of just under 3 percent in the USA a 'crash'. Of course, such a fall in the US stock markets also spills over to the other stock markets." Nevertheless, the falling share price and thus also the leading index is not yet a complete collapse.
The US central bank has lowered the key interest rate, which should be positive for shares per se. "What has spooked the markets, however, is that the US Fed has signaled that it only intends to cut the key interest rate twice in the coming year," explains Kalt. The markets were expecting twice as many rate cuts.
Recovery possible in the medium and long term
Can investors also expect price gains again in the medium term? Kalt says: "The US economy and therefore corporate profits continue to grow very solidly. In addition, interest rates are likely to fall further, albeit somewhat more slowly." This is basically a positive environment for equities.
It is true that Donald Trump's inauguration has brought some uncertainty to the markets, which can always lead to fluctuations. "However, we assume that many of the policy measures announced by Trump will be less drastic than currently feared and expect the stock markets to continue to trend slightly upwards," explains Kalt.
The collapse is also indirectly related to the US elections, says Kalt: "Because the US central bank cannot estimate how much the tariffs threatened by Donald Trump will fuel inflation in the US, it has now signaled that it wants to lower the key interest rate slightly less." This has startled market participants and probably led some investors to take profits.
