Today’s Key Market Drivers – 24th October 2017

Something very significant happened on this day in 1929. Tuesday, October 24th is remembered as the worst day in stock market history and 88 years later the 24th of October is once again a Tuesday and stock indexes in the USA are at all-time highs. History tells us that October has significance when it comes to financial markets. In October 1907 there was widespread panic on the US stock market with the threat of legislation change causing a major nosedive. 22 years later on this day in 1929 US stocks crashed the most in history over two days wiping out thousands of investors fortunes. It took 58 years but in October 1987 the Dow Jones fell 22% in one day as global stock markets went into meltdown.

The crash in 1929 signaled the beginning of the great depression but we are highly unlikely about to see a repeat today of what occurred all those years ago. The Dow Jones Index carries the top 30 companies by market capitalisation which is simply the number of shares times the value of each share. The Dow Jones index was started by none other than Mr Dow and Mr Jones who at the time also started the now-famous Wall Street Journal. Initially, it was a small newspaper with news on the front and the Dow Jones Index of stocks on the back. Ok, history lesson over now let’s get back to what’s driving markets this week.

Shinzo Abe’s win in the Japanese election on the weekend has only reinforced the markets view that the Japanese Government and Bank of Japan will continue with its current monetary stimulus program and provided the US stock market doesn’t take a dive we will likely see the US Dollar vs Yen continue to climb. The reasoning behind this is because the Bank of Japan has negative interest rates and is printing trillions of Yen per year to prop up the economy. Who wants to buy Japanese assets when interest rates are negative and the Central Bank is artificially printing money and propping up the economy? No different to you having a printing press in your garage and printing off money so you can pay your mortgage or credit card. You would be considered worthless by the bank and frankly so should Japan. But financial markets habits die hard and what could reverse the current USD v JPY trend is a military strike with North Korea that escalates into something substantial or the US stock market correcting with a sustained pullback. One thing is for certain it will happen at some point but I just don’t think today is the day. There is a distinct possibility with US stock indexes having the incredible run they have had since the GFC a pullback in 2018 will occur but history shows there is usually a significant fundamental reason for stock markets to crash and we just don’t have that fear right now. If the stock market was to fall sharply over a number of months this is the time, in my opinion, to consider buying blue chips stocks as they are always the stocks to rise back higher first and eventually to move to new highs.

 

About the Author: Andrew Barnett

Andrew is a professional trader and successful investor who has a strong focus on education. He is a regular Sky News Money Channel Guest and one of Australia’s most awarded and respected financial experts, and is regularly contacted by the Australian Media for the latest on what is happening with the Australian Dollar. Director at LTG GoldRock, Andrew Barnett, guides thousands of traders around the world in the live market on a daily basis, advising them on buy and sell directions, as well as trading his own personal account. Andrew, a regular key-note speaker at trading and wealth-creation events throughout the Asia Pacific region, is an authorized representative registered with the Australian Securities and Investment Commission (ASIC).

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