Stocks appear to have stabilized after a rough week. But several questions remain. Was this a one-time shock event, or is it a correction? And if it’s a correction, how low can things go?
We can be sure that what has happened so far is not an isolated event, but part of a major change in the regime from loose, cheap money to a more normal economy. Corporate profits are high, and America is taking care of business, so there’s no apparent reason to be terribly afraid.
Yet the change is significant, and precisely how significant will not be clear for some time. Here is what to watch for as stocks and other markets absorb the change and make a transition into a new economy.
Watching the stock market on a daily basis is a good way to go insane. If you doubt this, all you have to do is read the various explanations for the daily gyrations – which rarely make much sense. Nevermind them. Since the start of 2016 the market’s been in a serious funk, which is to say it’s had a major urge to get down.
The official explanation is “China”. Something about China, at least. We’ve never bought that here at Barataria, focusing instead on the positive news that surrounds us every day. No, we’re not joking. There is indeed positive news and the market reflects this – sort of, at least.
Like good funk, the story of the stock market today comes with a backbeat and a solid bass line. It’s all about how the vagaries of international finance flow through the news and the market with a beat that so infectious ev’rbody has to dance.
With the Superbowl done, the nation settles in to the depths of Winter. This has been a hard time of year for many reason, not just the sudden end of football. The last few years have been harder to take than what the Panther fans are feeling about now.
This year? It may yet be worse, according to prognosticators. Then again, the worst may be over. Let’s update last year’s big stories to see how this year is coming along to see if there’s reason to hope.
It’s been week since a blowout jobs report set fire to financial markets and signaled that everything is about to change. Barataria predicted a good report, if very timidly, and gave everything a week to shake out. So where do we stand a week from the first clear signal liftoff is occurring?
The short answer is that markets have absorbed the reality of a rising Fed Funds Rate. The long answer is that it sure doesn’t look like it for a lot of reasons which are complicated and confusing. In an increasingly smaller world there is nothing that confines money to one “market”, meaning that pressure is on from all directions.
The upshot is that after an initial spike there is reason to believe a rise in interest rates by the Fed may yet trigger a net medium-term fall in interest rates paid by consumers, as predicted. It’s worth explaining further.