Stocks Nosedive as Unemployment Rises
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The stock market has been open for less than an hour, and already it’s a major bloodbath. U.S. stock futures pointed to a lower open today, but I’m not sure how many people expected this. The Dow is already down by more than 170 points and heading toward 180. (Will the Dow lose more than 200 points? The day is young enough that it might.) The Nasdaq and the S&P 500 are also lower.
After yesterday’s optimistic open to the 3rd quarter, things have turned pessimistic quickly. Even though yesterday’s disappointing ADP employment data prepared investors for today’s news, it still remains an unpleasant reality. Even the fact that unemployment is now sitting at 9.5%, instead of the expected 9.6%, is providing little in the way of hope. The bears are out for vengeance today, and they are getting it.
U.S. dollar gains on risk aversion
Normally, this sort of bad economic news would send a currency lower. But that is not how things have been working this recession. Instead, the U.S. dollar has been seen as a safe haven currency, providing investors with a place to preserve their capital in uncertain times. With stocks dropping so precipitously today, it is no surprise that the greenback is taking the upper hand against the euro and the pound. Those are two currencies that people turn to when they want higher returns and can stomach risk. In the current environment, investors are fleeing risk in return for safety.
Even though there has been talk of a decline in the value of the U.S. dollar due to future inflation and high government debt, in the short-term, the dollar is likely to remain reasonably strong. The greenback is supported by the world’s most reliable taxpayer base, and that means that it will likely remain in demand as a safe haven investment until economic recovery begins.
Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions and any loss that may result from your decisions.
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