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Stock Markets Drop As Investors Panic After Labor Report Release

The Dow Jones industrial average has been on a roller coaster ride this week plunging a record of 1,175 points Monday and then going back up 567 points today.

Prices were volatile for the past 24 hours, crossing the line between gains and losses more than 20 times throughout the day.

Many believe that the sharp drop on Monday was caused by Friday’s unemployment report which revealed that the unemployment rate was exceptionally low and that was forcing companies to pay their employees higher salaries.

According to a report by the Labor Department, unemployment is at an 18-year low and wages were up 2.9 percent in January 2018 compared to January 2017. This represented the fastest growth in wages since the recession.

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While many Americans are happy with the higher pay, many investors worry that this means lower profit for shareholders. And if wages and prices rise faster than anticipated by the Federal Reserve, Wall Street is worried that the Fed will have to raise interest rates significantly to cope.

In a statement, Colin Moore, global chief investment officer of Columbia Threadneedle Investments, said

Investors are fearful that inflation will rise faster than expected due to the impact of a weak dollar on import prices and rising wages, and that as a result interest rates may also rise faster than expected.

Higher inflation rates usually has the effect of slowing economic growth since it’s more expensive for people to borrow for home mortgages, credit card debt and car loans. But according to analysts, moderate inflation is a healthy element of an economy and rising wages are welcome as well. The real cause of anxiety is that inflation could quickly grow overheated, where the risks of inflation are bigger than the risks of recession.

Despite the significant decline, there is still much room for the market to accommodate. The stock market has been steadily rising for the last nine years and many analysts believe that it’s healthy to see some downturn. After the 2008-2009 recessions, inflation has yet to hit the 2 percent a year number set by the Fed. Right now, inflation is at 1.7 percent, still fairly weak compared to what is expected. After the sharp dive Monday, prices are back up and the Dow closed up 2.3 percent, Nasdaq at 2.1 percent, and the S&P 500 went up 1.7 percent.


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