What Happened?

February 17, 2018

Monday has been a  tumultuous day down in NYC, as the DOW Jones fell 1,175 points--the largest fall in one day ever (for context the second largest was 777.84 points). So what does this mean? Well if you're unfamiliar with what the DOW Jones Industrial Average is in general, the DOW is basically take the 30 most important stocks and take an average of them all. An easy way of thinking about it is the higher the number the better the economy, the lower the number the worse the economy is.

So the DOW falling 1,175 points is bad-- it means that the major publicly traded companies are in a state of unrest. So why are the major companies in such a state of restlessness?

Monday morning the government appointed a new chairman of the federal reserve (think of them as the high judge over wall street), and his name is Jerome Powell. Now Powell scares a lot of big companies because he is not an economist, and he holds some unorthodox views on things such as inflation and unemployment. The scariest thing for big companies is uncertainty, and at the moment, no one really knows what type of an impact Powell will have on the economy. So companies in response took a lot of their money and transitioned it into more stable forms of capital.                         

Now, it's worth noting that this is just one theory for what happened Monday. Other theories are simply that it is part of the boom-and-bust cycle, while others argue that this is the fault of machine trading. But no matter what the cause is, it is going to be an awkward couple of weeks for President Trump, who in recent weeks has gone out of his way to take credit for all aspects of the economy.



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