Investors are keeping a close eye on the stock market this morning following Japan’s sharp dive on Monday, the biggest drop since 1987.
Japanese markets bounced back quickly by Tuesday morning, but the drop in stocks caught the attention of investors around the world.
Pete Tibbles from BOK Financial joined New 9 at 9 with more information on the stock market drop and how it could affect the American economy.
He said the drop was caused by what they call a carry trade.
“After COVID, central banks raised rates significantly to combat inflation, but that did not happen in Japan, and so a lot of people borrowed currency,” Tibbles said.
He said many people borrowed Japanese currency at low rates with zero interest and used the money to invest in other markets.
“Unfortunately, what’s happened now is the Bank of Japan has come out of that ultra-loose monetary policy. They’re now starting to raise rates,” Tibbles said.
He explained that this pushed the market to start thinking the Federal Reserve would start cutting rates more aggressively.
He said his advice to stockholders when this happens is to have a diversified portfolio and not panic.
“If you have a plan already and you’re invested, then stay. Stay the course,” Tibbles said. “We do have down days like this. I know it’s scary, but it’s just par for the course.”
He said he thinks the Federal Reserve will cut rates in September, which will help anyone who is borrowing money.
“I think at the moment, it’s probably a 25 basis point cut, which will be the first one, which will probably lead to more rate cuts, but depending on the data between now and September, that could be as high as a 50 basis point cut,” Tibbles said.
He said dips in the market usually do not have any impact on political races.
“The president’s candidates may well talk about what’s happening in the financial markets, but, historically, I don’t think if you look at the long term, no, I don’t think that will have an effect,” Tibbles said.
In Oklahoma, lowering rates could encourage businesses to invest more and could mean adding employees.
“With those rates coming down, I think that will definitely help companies across the country, but obviously also here in Oklahoma,” Tibbles said.
