Trillions of dollars in value has been wiped off markets since US President Donald Trump announced his latest round of tariffs on what he called “Liberation Day” last week.
And it’s not just the US where the economic shock has been felt.
Markets around the world, including in Australia, have witnessed sharp declines.
Using Google Trends, the ABC was able to see the questions Australians are asking about stock markets.
So here’s a simplified guide.
What is the stock market?
The stock market is like any market. In this case, the things that are for sale are the companies themselves.
If a company is publicly listed, portions of it — known as shares or stocks — are sold on the stock market. When you buy shares it means you own a small part of a company.
A company’s performance, the current price of shares and economic decisions all play into an investor’s decision to buy or sell.
When there is high demand for shares in a company, its stock price will rise. Demand might be high when investors believe the company has good potential to earn money for its shareholders.
But the opposite can occur when there’s bad economic news or the company has performed poorly. When that happens, investors can choose to sell the shares they own, which lowers the demand for a company’s shares and therefore lowers its share price
When this happens on a large scale, stocks across the board will lose value — and this is what has happened on global markets since Trump’s tariffs came into effect.
Any investor — whether you’re a university student or retiree — can buy and sell stocks of companies through a broker, and most people with a superannuation account are exposed to the ups and downs of the stock market.
What is the ASX?
The ASX is the Australian Securities Exchange, and it’s where many Australian companies like Commonwealth Bank, BHP and Qantas are traded.
Its performance can be tracked through the ASX 200, which is an index that tracks the top 200 companies listed on the exchange, and the All Ordinaries, which tracks the top 500.
Often, people use the terms stock market and stock exchange interchangeably. But they aren’t the same thing.
The stock market refers to the overall system where traders are buying and selling shares, for example the US market, often referred to as Wall Street. The market can be made up of multiple stock exchanges — in the US example, there’s the New York Stock Exchange (NYSE) and the Nasdaq, two separate exchanges accessed by traders in the US market.
There are more than 2,000 companies listed on the ASX.
What is the Dow Jones?
The Dow Jones is one of the three indexes tracking the US stock market’s performance, along with the S&P 500 and the Nasdaq composite.
Each of them tracks different number of companies for different reasons, but collectively they reflect what’s happening on Wall Street, which is where the New York Stock Exchange is based in New York City.
The Dow Jones tracks the price of the 30 of the most traded stocks, the Nasdaq mainly focuses on tech stocks like Google owner Alphabet, Apple and Tesla, and the S&P 500, tracks 500 leading companies.
The indexes help investors determine the overall direction of stock prices.
The Nasdaq in particular has risen steeply in recent years off the back of interest in AI.
Why is the AUD so low?
The Australian dollar sank below 60 US cents on Monday for the first time since the pandemic.
The Australian dollar and other currencies are measured against the US dollar as a base currency.
Here’s how ABC business editor Michael Janda and business reporter Emilia Terzon put it:
The local currency is dropping in the wake of US President Donald Trump’s tariffs announcement, as they stoke fears of a global recession and investors sell off trillions of dollars’ worth of stocks.
“Certainly, if the Aussie dollar falls very steeply, it’s because something bad is happening somewhere,” currency analyst Sean Callow from firm ITC Markets told ABC News.
Essentially, the AUD is highly aligned with changes in risk sentiment in global markets.
So during times when concerns with the global outlook reduce appetite for risk, the AUD typically weakens.
Given how exposed the Australian economy is to China, currency traders also use the Aussie dollar as a proxy for trading the Yuan.
Mr Callow also said that the AUD started dropping as soon as news broke out that China was retaliating against the US tariffs.
A weaker Australian dollar means bad news for travellers and people buying goods from the US, as US dollars are more expensive to buy.
What is a bear market?
A bear market is a term used by market-watchers for when stocks fall 20 per cent or more from a recent high for a sustained period of time.
It is called a bear market because bears hibernate so they represent a stock market that is retreating.
When the market surges, it is called a bull market because it’s charging ahead.
The S&P 500 is now 17.6 per cent below the all-time high set on February 19.
The most recent bear market for the S&P ran from January to October in 2022.
On average, bear markets have taken 13 months to go from peak to trough and 27 months to get back to break even since World War II.
Typically, a bear market is over when there has been a 20 per cent gain from a low point as well as sustained gains over a six month period.
Has the stock market crashed?
A stock market crash occurs when there is a sudden or abrupt drop in stock prices.
It can be a side effect of a major event or an economic crisis.
Well known US stock market crashes include the market crash of 1929, which sparked the Great Depression, where the Dow Jones lost more than 12 per cent, then a further 11 per cent on back to back days.
On Black Monday in 1987 the Dow lost more than 22 per cent in a day in a sell-off largely caused by investor panic.
Public reaction such as panic can also worsen a stock market crash due to panic selling which depresses prices even further.
What is a recession?
A recession is a significant downturn in economic activity that lasts longer than a few months.
During periods of recession businesses typically cut jobs and unemployment rises and employers look to cut costs.
The commonly-used definition of a ‘technical recession’ is when you have two consecutive negative quarters (three-month periods) of Gross Domestic Product. That is, a country’s economy shrinks, rather than grows.
The usual indication of a recession is when you have two consecutive negative quarters (three-month periods) of Gross Domestic Product.
In Australia, the Australian Bureau of Statistics provides quarterly updates on our economic growth, and if GDP goes backwards for two straight quarters, that would indicate a technical recession.
Australia is not currently in a recession.
Until recently, Australia was in what’s known as a per capita recession, which is where the economy grows at a slower pace than the population.
As population grows, so to does demand — for everything from goods, to services, to housing — so that helps the economy grow. That’s why it can be useful to look at GDP ‘per capita’, or per person, to give an indication of the economy’s trajectory, without the boost of population growth.
The US is also not currently in a recession but investment bank Goldman Sachs has raised the odds of the US entering a recession to 45 per cent.
Goldman had previously raised its estimate from 20 per cent to 35 per cent last week on fears that US President Donald Trump’s planned tariffs would roil the global economy.
Days later, Mr Trump announced steeper-than-expected tariffs, which have ignited the sell-off in global markets.
ABC/Wires
