Chances are, you might have noticed some of the US stock holdings in your investment account dive into the red recently. Don’t worry, it’s not just you; the entire market is in turmoil.
For businesses, they would be exposed to more expensive business loans, as well as flagging consumer demand. Therefore, this generally dampens the outlook for future company profits and investors’ eagerness to buy the company’s stock. Additionally, there were also vague details about the Federal Reserve’s plans to shrink its US$9 trillion balance sheet, also known as quantitative tightening. Given the massive size of these security holdings, how the Fed reduces it will be more consequential than interest rate hikes. Outright asset sales of the securities in its portfolio could depress the bond market, leading to market volatility.