Annotated Bibliography

The article What’s Going On in the Markets? 5 Theories to Explain the Chaos was written by Sauyma Vaishampayan, and was published February 10, 2016. The topic of this article was to explore possible reasons for why there is currently an abundance of volatility in the stock market. In this article the topics of short term interest rates, the yuan value, oil prices, are examined along with their effect on the Stock Market.

The key economic events and issues discussed in this article was first how the FED’s decision to raise short term interest rates affect the stock market. In the article it was concluded that due to short term interest rates being raised investors had the incentive to believe that banks would pocket an expanding difference

However due to the yields decreasing investors decided to pull out, which in turn caused the stock prices to drop. The second issue discussed in the article was the possible devaluation of the yuan. The article stated that a devaluation of the yuan could again lead to another global selloff. Due to China being an economic powerhouse and due to the lack of information there is widespread fear among the market. The third topic discussed in this article was how the U.S. Stock Market is performing poorly due to decreases in the manufacturing sector, job growth, unemployment and wages. This slowdown is generating fear that there is going to be a sharp slowdown in emerging markets. The fourth topic discussed in this article were how Sovereign-Wealth funds are liquidating stocks, which is accelerating the U.S. market selloff. Due to oil prices decreasing companies are

The recent increase in the short term interest rate is an important topic when discussing its effect on the stock market as the .25% increase in interest rates was the first rise in interest rates in almost a decade. This rise in interest rates affects the Stock Market through companies spending less which in turn causes consumers to believe their stock price is lower. This idea is due to the fact that as short term interest rates increase, there is a decrease in the availability of money as the cost to borrow money becomes greater. This in turn will slow the growth of the economy, and thus the stock market. Another point that was not mentioned in the article that explains the chaos in the market is how investors currently have the option of investing in the stock market at a 3-4 % yield with high risk or a 1.76% yield in government bonds at zero risk. As demonstrated there is not a significant reason to currently invest in the stock market with such low returns. The second issue of the devaluation of the yuan leads to transnational competition for scarce export earnings. This means that Chinese exports will become cheaper, and Chinese products will be purchased over another competing