Understanding How Trillions Can Vanish: Insider Insights into Stock Market Secrets

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Trillions have been wiped off markets since United States President Donald Trump announced his latest round of tariffs last week during a so-called ‘Liberation Day’ event.

And it’s not just the US stock markets that are nosediving; economies around the world, , have witnessed sharp declines.

The Australian share market took its biggest hit in over a year on Monday, as fears grow that the US could enter a recession, limiting its buying power and creating global uncertainty.

Where did the money go?

Dr Pramod Kumar Yadav, a lecturer of finance at the University of Sydney Business School, told SBS News the missing trillions are subjective values, not physical money.

“The decrease in the market value is not equivalent to cash. It’s essentially a decline in the market value of stocks that are listed on that particular exchange,” he said.

Yadav said stock prices can fall due to the uncertainty that an economic measure like trade tariffs can create, making stock markets risky for investors.

“There is also going to be people moving money from risky assets like the stock market, to safer assets like cash, gold and government bonds,” he said.

A chart showing the US stock market index

Source: SBS News

How does one market affect another?

Global markets are interconnected, and as Yadav explained, Australia is not immune to the impact of foreign stock crashes.

“Anything that happens in the US market will definitely have an impact on the Australian dollar simply because the Australian dollar is one of the most traded currencies,” he said.

Fluctuations in global markets drive the Aussie dollar up and down, which then affects price levels domestically.

How will the stock market fluctuations impact Australians?

Peter Swan, a professor of finance from the University of New South Wales Business School, told SBS News the fluctuations would leave Australians poorer.

“The main investors who have lost wealth are the superannuation funds representing Australian retirees,” he said.

“Since these subscriptions are compulsory, most Australians are now poorer.”

A chart showing the Australian stock market index

Source: SBS News

While institutional stock traders are bearing the brunt, he noted that everyday investors are also feeling the pinch.

However, those who sold shares in anticipation of a market crash are now in a better position.

Could more tariffs make things worse?

While it’s hard to determine whether markets will continue to decline, the uncertainty surrounding potential tariff threats and subsequent trade wars is unlikely to help them recover.

Professor Robert Brooks from Monash University’s Department of Econometrics and Business Statistics said: “The more that we get tit for tax on retaliation to the Trump tariffs, the greater is the risk to global growth.”

He told SBS News the uncertain economic policies, like threats of reciprocal tariffs or embargoes, could prompt countries and investors to avoid markets.

When will the markets recover?

For markets to start to recover, there needs to be less risk, according to Brooks.

“What will help markets to recover is to get a greater level of certainty for investors,” he said.

He said it’s hard to determine when markets will recover, as some countries will try to negotiate trade deals with the US which could again destabilise markets.

“When it comes to global growth and trade, everyone’s outlook has become more pessimistic.”

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