If the interest rate jump over recent weeks didn’t get the attention of investors, last week’s quick collapse of stock prices should have if, for no other reason, because of the lack of a simple and obvious explanation.
Over the course of a few trading sessions, the S&P 500 and Nasdaq stock indices shed more than 4 percent each. Sure, the bond market sell-off has been worrisome, there are jitters over earnings season just beginning, and the trade war in China may be taking a toll. But do these well-known and existing concerns really add up to a tipping point for investors? Or the economy?
Probably not for the economy. The Federal Reserve Bank of Atlanta’s GDP Now gauge finds the American economy growing at more than 4 percent. Say what you will about the quality and pay of jobs, but unemployment is historically low. Retail sales and manufacturing data will be released in the week ahead. They will be dissected for any signs of building inflation pressures, which has been blamed for the sell-off in the bond market.
The stock market, though, is more capricious and myopic than the economy. The October sell-off came with the S&P 500 and Nasdaq at record highs. That’s tough to remember when the Dow Jones Industrial Average flashes triple digit losses at the closing bell, trade tensions between the U.S. and China remain on edge and President Donald Trump says the Federal Reserve has “gone crazy” by raising interest rates.
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In the week ahead, there will be no shortage of answers offered explaining the waning risk appetite of investors. Investors will vote with their money, not their voices.
Tom Hudson hosts “The Sunshine Economy” on WLRN-FM; @HudsonsView.