Global Trade and Finance

Student’s Name:Response paper topic: Global Trade and Finance
Article title: Why has the Stock Market Been Dropping? The expansion Heads Toward a New PhaseArticle publication: New York TimesArticle date: October, 25th 2018

Section One
Neil Irwin in his article Why has the Stock Market Been Dropping? The expansion Heads Toward a New Phase indicates that this drastic decline in stock market means the economy is resetting and not crashing. He say that the way the economy is shifting will negatively affect stock prices in the years to come but positively affect the economy and individuals depending on it. Neil says that the bull market has been a complete dream for stock investors. As compared to the worldwide growth, there has been a steady rise in the United States of America’s economy, a move that has led to drops in the interest rates, making investments in the stocks more inspiring as compared to bonds and cash. Fast growth results from weak growth and high employment creating low pressures for companies in paying well for labor and the raw materials supplied. There are plenty of alternatives (Irwin 2018). The second factor leading to the rise in economy is the domestic policy signed by President Donald Trump that led to a steep reduction the rates of corporate tax; shareholders reap higher profits after taxing. Neil’s arguments for a reset and not a crash are based on the facts; that economy is getting heated up as well as interests rates steadily rising, all thanks to the increase in the rates of Federal Reserve, and that stock market drops are as a result of the increase in rates of longer-term in that same period.

Neil espoused realism approach to his thinking. Economic stability of United States affects the world economy (Irwin 2018). In realism, the economic power based on their wealth determines a country’s superiority in the face of the world. His presentation of the arguments is factual. His thinking is in line with the reality on the ground.
Section Two
To some extent, I am in agreement with the argument. He says that there is an increase in interest rates as a result of the Fed’s reaction to rising inflation. This translates to high or a rise in workers’ wages too. This translates to better living standards to the citizens. The rise in wages can also be brought about by the low levels of unemployment. On the other hand, I am in disagreement with the author’s arguments. The rise in interest rates also implies that sectors such as loans, home mortgages and auto loans interest are also increasing (Irwin 2018). This is because the governments as well as the central banks always react to rising or heating economy by increasing such rates in order to reduces the spending as well as borrowing. With the continuous increase in all these, there is a drop or a decrease in the living standards of the workers. Dropping of stock values on the other hand also affects the retirement benefits of the workers as it is tied to it. The workers will be forced to divert much of their incomes to retirement savings. Diversion of such kind brings about some constraints in their salaries. This affects these workers negatively as their wages are now reduced.
One of the strengths of this article is; despite the decreasing rates, the writer is pulling out the positivity in what was generally viewed as negatively affecting investors. It raises the spirits of the people who had not yet looked at the situation from this positive side. On the other hand, it has weaknesses too (Irwin 2018). It is not explaining what can be done to ensure stocks are also o the rice without affecting the bonds and interest rates. Another weakness is that this article is not showing the various trends over a certain period of time about the stock market. The trends help readers to understand the past, the present as well as the future of the stock market.
The writer would have also touched on the fact that, companies spent more money from the tax cut in buying or purchasing back their stock instead of increasing or enlarging their business. This move artificially inflated the stock market. The higher the shares they had translated to the low prices of the stocks. The second point that ought to have been touched on is how to bring about the balance without having to reduce or decrease the interest rates. A strong stock market always reflects the healthiness as well the strength of an economy.

Reference
Neil Irwin (2018): Why has the Stock Market Been Dropping? The expansion Heads Toward a New Phase. The New York Times, Oct 25.