Equity markets have a weak day
Broadly speaking the U.S. equity market was down today, with the Dow, S&P, and the Nasdaq all approaching 1% declines during the day. Oil related stocks were particularly vulnerable as were airlines. Volumes in small cap stocks were below normal for the most part.
The primary culprit for today's performance was extreme volatility in the bond market related to a tighter job market and fears of inflationary pressure. We are so far from this being an important economic factor but the markets have been on pins and needles in 2015 just waiting for something that will indicate a potential rise in interest rates and any possibility of inflation. Greece received attention as no resolution of that situation seems on the near term horizon. Here it could be said "let them go" but the issue is precedent. Breaking the relationship could foreshadow a similar decision in the inevitable next country crisis, and the next....
Tomorrow we await the jobs report which could be good, which could be bad if that makes the market fear a rate hike sooner rather than later. It will happen eventually, so the attitude here is "let's get it over" and end the commitment to zero short term rates. But that is not how many in the market see it, even the liberal Larry Summers who has a strong view that rates should not rise. Looking at the longer end of the yield curve, the market can raise rates no matter what the Fed does or what U.S. policy goals are.
The air may be leaking slightly out of the market, but it is slow and can reinflate in a heartbeat with some more interesting positive news than we have been seeing in the last few weeks. We never know.
The primary culprit for today's performance was extreme volatility in the bond market related to a tighter job market and fears of inflationary pressure. We are so far from this being an important economic factor but the markets have been on pins and needles in 2015 just waiting for something that will indicate a potential rise in interest rates and any possibility of inflation. Greece received attention as no resolution of that situation seems on the near term horizon. Here it could be said "let them go" but the issue is precedent. Breaking the relationship could foreshadow a similar decision in the inevitable next country crisis, and the next....
Tomorrow we await the jobs report which could be good, which could be bad if that makes the market fear a rate hike sooner rather than later. It will happen eventually, so the attitude here is "let's get it over" and end the commitment to zero short term rates. But that is not how many in the market see it, even the liberal Larry Summers who has a strong view that rates should not rise. Looking at the longer end of the yield curve, the market can raise rates no matter what the Fed does or what U.S. policy goals are.
The air may be leaking slightly out of the market, but it is slow and can reinflate in a heartbeat with some more interesting positive news than we have been seeing in the last few weeks. We never know.
posted by John Borden at 8:49 PM
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