This week in the markets
- The Dow Jones Industrial Average (DJIA) jumped 600 points on Wednesday, possibly due to the Fed announcing a more relaxed stance on interest rate hikes.
- On Monday, General Motors announced plans to lay off 14,000 workers and retire six car models.
- There were $7.9 billion in online sales on Cyber Monday, which is a 19.3% increase from last year.
Rate fears seemed to fade midweek
Federal Reserve Chair Jerome Powell gave a speech on Wednesday that appeared to cast a brighter outlook on the US economy. Powell suggested that the Fed may not have to raise interest rates much more before hitting its long-term target of maintaining a neutral rate (one that neither speeds up nor slows down the economy). He reassured investors that the Fed wouldn't risk harming economic growth by raising rates too aggressively next year.
Remember: The Fed can adjust the interest rate for banks to borrow money, which has a ripple effect across the entire economy. When rates are low, banks can borrow money more cheaply and loan money out to individuals and businesses at lower rates. This can cause the prices of goods to rise as consumers have greater access to capital, which in turn can cause the dollar to lose value -- this is called inflation. The Fed tries to fight inflation by raising interest rates, which makes it more expensive for banks to borrow money, and in turn more expensive for individuals and businesses to borrow money. In an environment of rising interest rates, consumers have less access to cheap capital and therefore the value of the dollar increases
Investors appeared to be quite content after Powell’s speech on Wednesday; the Dow Jones Industrial Average (DJIA) increased 2.5% (its second-best day of the year), the Standard and Poor’s 500 Index (S&P 500) was also up 2.3%, and the Nasdaq climbed 2.95% all on Wednesday. Powell’s words seemed to really pack a punch!
GM plans significant cuts across the company
General Motors (GM) plans to close five assembly plants and shut down production of six car models, effectively cutting over 14,000 factory and office jobs throughout the US and Canada. The Detroit-based automaker attributed the layoffs to an intensely competitive industry, rising commodity prices, and a difficult trade environment. Despite the announcement, GM’s stock price was still up 0.71% at Wednesday’s close.
Cyber Monday hits record sales
Many people spent Monday scouring the internet for the best online deals -- probably while at work .. tsk, tsk. Cyber Monday’s online sales reached a record-breaking $7.9 billion, which is a 19.3% increase from last year. Sales through smartphones hit $2.2 billion and accounted for 47% of online traffic to stores. We all need to chill! Too much easy buying on our phones can lead to unwanted debt. Foot traffic was down, however, at some stores over the holiday weekend, as more shoppers are turning to the internet to hunt for deals.
Amazon had its biggest shopping day ever on Cyber Monday based on the number of items sold, and its stock was up 6% at Wednesday close. Amazon is one of the top five holdings in the Vanguard S&P 500 ETF (VOO) in which MoneyLion members are invested (as of 10/31/2018). 🙌
And now for your weekly Lionomics wrap-up. 🤓
Lionomics: Finance made easy
This week, Lionomics taught you about recessions. A recession is the last stage of a business cycle when the economy shrinks in size. You also learned how recessions are a normal (and essential) part of the economy that have happened throughout history. In fact, there have been 34 recessions since the mid-19th century, and the US economy continues to rebound and grow stronger.
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