Concerns over inflation and interest rates
With the current ongoing pandemic, interest rates in the United States are close to record lows. The purpose of low interest rates is to ultimately boost the economy during this period of economic despair. However, lower interest rates also mean there is a possible danger of inflation getting out of control. “Inflation is the decline of purchasing power of a given currency over time” (Investopedia). With interest rates being as low as they were last year, it allowed the stock market to grow and increase in value at a higher rate. What we are experiencing now, is a concern that inflation could get out of control which is leading to big moves in the 10-year U.S. treasury bond. Large moves in interest rates like we have seen this past week are leading investors to take profits in many of the technology stocks that grew substantially during the lockdown. One concern investors have, is that when the economy re-opens, people will rely less on technology as they get out of the lockdown and get back to a normal way of life. For example, investors in companies like Peleton are fearful that their customers will go back to the gym and stop purchasing Peleton bikes and using their services. The big question is, will the economy grow at a solid growth rate, or will growth get out of hand and lead to higher inflation and substantially higher interest rates.