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The 2018 Stock Market Crash: What caused it, and how should you invest?! - YouTube
Channel: ForexSignals TV
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Hi thre! Now, this week's video is going
to be slightly different than my recent
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videos, and that we're going to be talking
about the actual markets, the recent
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moves that we've been seeing. I think
it's important that you know why these
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bigger moves in the global stock markets
can be very good for us as Forex traders,
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especially if you know
what you're looking at. Now, before I
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continue let me remind you to subscribe
to the channel if you don't already do
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so. Make sure you hit that little "Bell"
notification, that way you'll be notified
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the moment my next video has been
released. Also, you can follow us on
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Instagram and of course, Facebook and if
you follow us on Facebook you can join
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me live every Monday at 2PM London
time.
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where I stream live absolutely free of
charge discussing the trading
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opportunities for the week ahead.
Also, at this juncture, I want to say that
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the views and opinions in this video are
purely my own. They should not be
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considered as investment advice. As
always, please consult an investment
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adviser before investing any money or
any trading instruments that you are
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unfamiliar with. Just the usual,
disclaimer because today we're talking
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about Markets.
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So what caused this stock market
sell-off? Well, like most things in
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trading, it's easy to talk in hindsight but
I guess, looking back the writing really
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was on the wall: that a major correction
was due. But as with trading, it's all
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about timing. Always is! And, I'm going to
be the first one to admit, I didn't pick
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the top of the stock market there at
27,000 back at the beginning of October.
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The reason why it dropped so rapidly so
fast I think can be discussed from two
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points. The first point I think is
significant is what was happening to the
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US bond market. Now, any of you that
follow the economies of the world would
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know that the US economy has been
growing at a healthy pace more recently.
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Up to almost 4%, but the problem that
banks, Central Banks face when the
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economy is growing so fast is that they
have to control inflation. They've got to
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keep a cap on inflation. That's what
they're mandated to d, and in order to
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control an inflation, to contain growth,
they've got to move interest rates and
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that's exactly what the Fed had been
doing. Now, if the economy would grow and
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and the Fed would going to contain
interest rates then inflation could end
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up out of control which is very very
damaging. So,the Fed had been moving interest
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rates as I've said. And they're also
scheduled to move interest rates again
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maybe for the rest of this year. One more
time and possibly, three or four times
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out into next year.Now, the US Treasury
bond market was catching u. It was
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reflecting these interest rate increases.
Just before the global stock market fall
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off, the US 10-year Treasury hit almost
3.25%. Now, the
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two-year deposit rate was up at three
percent. Now, when US got to this
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level, I think there is a significant
shift in the real money out of stocks
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into the safer bonds. And it's no real
surprise if after all you're able to get
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a guaranteed 3% for tying
your money up for just two short years.
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It does become quite an
attractive proposition certainly for
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pensions and funds, and the like. So then
there was a big selling of stocks and
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the move into the Treasury market. Then
you saw a drop of almost a thousand
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points, I think, it was in one day and it
got some investors nervous, saying all
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their juicy gains that they've had over
there, over the preceding months wiped
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away. And it was bit painful and others
then started thinking, okay, I don't want
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to lose any more I want to lock in my
profits now. And they started selling as
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well. And the number two reason I think,
or catalyst for the stock market drop
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was likely to be, the trade tensions
building up around the world with the US
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and China fighting it out on a daily
basis with tariffs and so forth. Now, this
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has resulted in a real slowdown of the
global economies in particular, the
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Chinese economy which as you know, is the
second biggest economy in the world.
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Now, if China slows down generally
affects commodity prices. They get
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affected as well. A slow down in China could
lead to a global slowdown and that's
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obviously what the markets were thinking.
And if the economies around the world
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are slowing down, then it's time to move
out of the stock market. And that is
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exactly what was happening. So how does
the Forex market get affected when you
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see this shift in money out of stocks?
Well, firstly let me say this it's all
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about risk-on/risk-off.
Stocks are considered more risky so they
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are risk-on. Now, when does a move out of
stocks that's a move to risk-off? Now,
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risk-off generally sees the safe haven
currencies such as the Japanese Yen and
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the Swiss Franc benefit. There's a move
into those currencies.So, why do these
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currencies benefit in times of risk-off?
Well, these are low yielding currencies.
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Japan and Switzerland have negative
interest rates so while you keep
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your wealth in a currency that has a
negative interest rates, it's better off
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to buy global stocks. If you want to buy
global stocks in a foreign country, you
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first of course need to buy the currency
of that country, and then for you be
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selling the Yen and the Swiss franc
against that other currency. Now, if the
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reverse were to happen and stock starts
going down, then the money is moved out
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of those foreign currencies and
repatriated back into the Japanese Yen
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and the Swiss Franc- the low yielders.
Remember, this is not an exact science.
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Markets are living
breathing entities and don't always
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behave as they should, but this is a
basic rule of thumb. So when stock
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markets are growing and expanding, it
usually means that the economies of
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those particular countries are expanding,
and if a country is expanding, that
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basically means more factories are being
built more plant is being made more
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machinery is being built. So that
generally means, the commodity prices
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rise. When commodity prices are in demand,
countries such as Australia which
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produce iron and steel, New Zealand,
Canada; these are known as the commodity
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countries. These currencies should
increase in value. Again, this is just a
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basic rule of thumb. Now, you may have
heard that expression in the past when
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the USA sneezes, the whole world catches
a cold. Well, it's pretty true! When the US
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stock market drops, the whole world pays
attention, and so it should. So basic rule
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of thumb, if the US stock market global
stock markets were to continue to fall,
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you could see a drop in the commodity
currencies like the Australian dollar,
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the Canadian dollar, New Zealand dollar,
and so forth.
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You could see a rise in the safe haven
currencies such as the Yen and the Swiss
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Franc. Now, it does really open up some
great opportunities for us in the Forex
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markets which is why we're always
looking at the global stock market as
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well. With the use of controlled
leverage, trading the Forex market can
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turn your bad losses in stocks into a
nice profitable gain somewhere else in
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your portfolio. Look, I hope you found
this useful; hope you found the video
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interesting. Give me a thumbs up if you
did, give me a thumbs down if you didn't.
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Don't forget to leave a comment! I try to
get back to as many as I can of course.
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As I said, don't forget to subscribe to
the channel if you haven't already done
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so. That Bell notification will get you
notified the next moment my next video
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is released. And also follow us on
Instagram and Facebook. If you follow on
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Facebook, I'll see you next Monday 2PM
London time. 'till then happy trading
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and goodbye!
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