Wall Street is panicking over the stock market. Here's what it looks like at the moment I'm writing this:
This is not yet even in "correction" territory, let alone a full-blown collapse. But a headline in the New York Times says traders are so panicked they think the Fed might hold an emergency meeting to cut rates.
I'd be fine with that, of course, though not because of modest losses on the stock market. I just think the Fed has kept rates far too high for far too long, so I'd be happy for any sign that they were taking the possibility of a downturn seriously. At this point, I really don't think inflation is what we need to be worrying about over the next year.
I've got cash on the sidelines and have been waiting for a buying opportunity. So this is nice as long as it doesn't get out of hand and cost Harris the election. Which I very much doubt will be the case. Seems we've all seen this movie before: markets correct, people get panicky, Fed lowers rates, markets stabilize...
At this point a gently cooling economy is Harris's friend, given the likely implications this fall for mortgage rates and gas prices.
Same here, I was waiting for the Republicans to tank the market by shutting the government down in a hissy, but they decided to be reasonable.
The market is way overpriced on AI hype.
As someone pointed out, in "The Magnificent Seven", seven went in, only three came out.
The AI hype was predicated on investors dumping loads more money into AI. Investors, however, started to see how much money was going into AI this quarter and started asking about returns....
Wild gyrations are expected with the market is thin, so to speak, with only a few companies making a large portion of an index. Tech companies have been way overpriced w/ regards to P/E, even if considering future earnings--but people and a lot of bots buy in on the way up and dump quickly (well, bots can, people not nearly as fast) when market starts to go down.
I'd guess that there's a fundamental misunderstanding of the capabilities of AI and how it will impact head count. I think investors who don't have a firm grasp of how AI works are just assuming it will allow companies to drastically cut headcount (thereby increasing profitability).
While no expert, it seems pretty clear to me that AI mostly makes productive people far, far more productive. This is certainly a boon, but not on the scale of replacing 1/3 of the workforce. Pushing the low performers out of the marketplace creates a different problem since they still need to eat and keep a roof over their heads. That cut in income also will be felt across a wide range of consumer products. The increased income going to people using AI will only make up for just so much.
The stock market and the Fed do a dance. The market expects the Fed to take certain steps. Usually, the Fed takes those steps. When it doesn't, the market reacts. Then what happens? Almost invariably, the Fed reacts to get in step again with the market (the Fed put).
This happened in 1918, Powell's first year, when the market wanted the Fed to ease from its quantitative tightening cycle and the Fed did not. The market dropped 17% in the three months before Xmas. Powell and the Fed shifted toward easing and the market went up 38% during the next 13 months, until the pandemic hit.
The Fed clearly fucked up by not cutting rates in July. The market would have liked a cut even earlier, but its patience ran out. What happens next, we'll see.
For what it's worth, all the talk about a recession is just wishful thinking by conservatives (which includes much of Wall Street and media like Fox and the NY Times).
The market had been getting a little frothy. A drop of 5% to 10% has to be considered "normal." It it gets much worse, then it becomes an election issue.
Consumer patience with prices is also running out, although that wasn't evident at any of the stores I went to this weekend.
Consumers (an overgeneralization, of course) think prices are "too high," so they therefore think prices should go back down. "Go back down" is what happens once or twice a century when we have a depression. But consumers are not economic historians, let alone mathematically savant economic theoreticians. So they get pissed off that prices are too high, and their subsequent economic behavior bears little relationship to rationality.
Concur with both overall assessment and opinion of the NY papers.
That won't stop various media from shrieking that the sky is falling. That is, until Harris announces her VP pick and the market nearly vanishes from the news.
Shame what has happened to the NYTimes tho. They still do really good overseas and investigative journalism, but their political stuff has degenerated to the point of mockery, and the rest of their domestic stuff is following suit.
With the discussion on stocks today, a few numbers to consider.
S&P 500 performance
-under Trump (4 yrs, starting 1/21/17): +48%
-under Biden (3.6 yrs., starting 1/21/21): +55%
That's based on intraday prices today.
In case you're wondering what might be one part of the motivation behind the New York Times's undeniable effort to help get TFG elected again, consider that the Times is not just a newspaper but a business.
NYT stock performance:
-under Trump (4 yrs, starting 1/21/17): +283%
-under Biden (3.6 yrs., starting 1/21/21): +2%
Hmm, seems like a good time to restate the disclaimer: ‘past results are no guarantee of future performance’.
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Financial markets are not irrelevant to the real economy. Except for when the Fed has gone berserk with interest rates, as in the 70's and 80's, major recessions have been caused by financial collapse. In 1929 the real economy was doing well, with real technical advances in many areas such as aviation and radio, but the collapse of the stock-market bubble caused panic leading to bank runs and other problems. Financial collapses happen because of unregulated financial overextension, especially excess leverage.
Is there a dangerous bubble now? It's hard to tell, since somebody is always predicting a collapse in one area or another. Nobody seems to have identified any major areas of excess leverage. Does crypto have the potential to cause a financial collapse? Nobody knows that either.
I agree with Kevin that the Fed should have reduced by now, but should not be influenced by the stock market. If we had real government controls, they would be restraining speculation, not just trying to react to it.
I think there's quite a bit of over extension in housing. There was a massive speculative boom in second mortgages that started in June of 2020 as investors piled in to take advantage of remote workers. Those second mortgage payments are supported by short term rental income, which has been falling. As investors try to sell off they find that regular folk aren't going to buy at their expected pricing.
So they whine about interest rates killing the housing market when it's really the pricing.
There was also quite a bit of first mortgage activity in that same period, but there aren't any checks on whether those buyers actually qualified for the lower rate (ie they were lying about the house being a primary residence).
I wonder if the fed at all considered the Japanese currency crisis when they made this (stupid) decision not to raise rates. Because they sure should have.
(Explanation: The yen has been very low against the dollar, which is boosted by US high interest rates. Japan is desperately trying to pump up the yen by raising their interest rates, resulting in a huge sell-off in Japanese markets, which is probably at least half the reason for the stock market drop here in the US. )
Maybe this is Wall Street's way of telling the Fed they damn well better cut rates by Sept. 18. Enough is enough.
Enough is enough for whom? If they cut rates the prices will only go up, so the consumer still doesn't win. The only winner is the seller who got to make more profit on the sale.
Does it matter why they cut rates? Especially now, when a rate cut is months overdue?
The next scheduled FOMC meeting is September 18. The next CPI report comes out August 14. If they're going to announce an emergency cut, it'd be on the heels of a CPI report confirming the trend towards lower inflation, I would think.