Stock Market Plunge Last Week Reveals Two Different Types of Investors.

The stock market dropped over 1,000 points last week, and it affected two different crowds in two different ways. The drop was attributed to wage increases in the job market for the start of 2018; they were much higher than expected for the January job report. U.S. corporations prospered in 2017 and wages were raised accordingly, but it was unexpected.

Higher wages normally set off a domino effect throughout the economic world raising the specter of inflation and interest rates. Traders and investors may expect the end of an amiable inflation that they had been used to in the market. Investors speculate – that’s what they do, so naturally, the major stocks will experience fluctuation, but the fluctuation is interpreted differently between two groups of speculators: the “momo” or the momentum group and the “smart money” or professionals.

As Valentines Day rapidly approaches, it appears that the smart money is opting to wait until crucial information is revealed in the Aurora Report before they make any major decisions to buy or sell large sums of money and stocks. Waiting is a conservative approach, but it’s only until Wednesday, Valentine’s Day, and the results will be released. At 8:30 am sharp, the CPI or Consumer Price Index and inflation report will be public.

Both groups have been debating if it really does make sense to make major decisions and trade before the CPI comes out. Smart money has been laying low, but the “momo” was actively selling stock. On opening Monday morning, the “momo’ was observed to be buying again, while the smart money was remained quiet.

Trade Issues a Risk to Stock Market

The Trump administration’s protectionist talks are a risk to the current bull market in stocks. According to MarketWatch, a recent report suggested that President Trump may seek withdrawal from North American Free Trade Ageement (NAFTA), a trading pact among the United States, Canada, and Mexico. A couple of months ago, Trump stated that the U.S. will not be taken advantage of anymore when it comes to trading in goods and services.

A couple of Canadian officials have admitted that Canada is becoming more convinced that the U.S. will seek to end NAFTA. But, if Trump wants to do it, it will not be that simple since the Congress needs to approve it.

Even an attempt to end NAFTA would bring great business uncertainty. After all, many American companies do business in Canada and Mexico. And this is cited as one of the major stock market risks in 2018. Already, Geopolitical Risk Indicator, run by Black Rock, is at its highest level since 2015.

If there’s a serious talk about ending NAFTA, it is likely to affect global trade in general. In the past, Donald Trump has criticized trading with China on multiple occasions. If there’s a trade clash between the United States and the Middle Kingdom, this is going to bring even more uncertainty to this bull market. With equities valued sky high, a major market correction could as well come this year.