The stock-market panic abates

By Felix Salmon
June 16, 2010
Greece downgrade by Moody's, but also big new developments on the BP front: the oil spill might be up to 60,000 barrels a day, it's setting up a $20 billion fund for claims, and is suspending its dividend.

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Here’s the S&P 500 over the past five days — days which have included not only the massive Greece downgrade by Moody’s, but also big new developments on the BP front: the oil spill might be up to 60,000 barrels a day, it’s setting up a $20 billion fund for claims, and is suspending its dividend.


At the end of all that, the stock market has managed to put on about 4%, in a relatively steady and non-volatile manner. That doesn’t mean that the news was good, of course: it wasn’t. It just means that the market is doing what markets are meant to do: anticipating bad news, pricing it in, and not panicking when it happens. Even BP shares are higher now than they were a week ago.

This says to me that volatility is falling and is likely to fall further, and that equities are beginning to look more like a coherent reflection of the underlying value of companies, and less like an insane casino. Insofar as there’s still craziness out there, it’s where it should be, in the high-risk margins. Look at the action in BP CDS, for instance: they spiked to 617bp today from 494bp on Tuesday, with total outstandings rising sharply to $1.67 billion from $1.28 billion a week ago.

So right now I’m less averse to investing in stocks than I was back in May. I’m still not sure that there’s an equity premium, but the insanity does seem to have abated for the time being. I’m not saying you should buy stocks, necessarily, but I’m less keen on selling them than I was back then.

6 comments so far

I’m pretty sure that picking the direction of volatility is only slightly less foolish than picking the direction of markets. Better to look where we are than to guess where we’re going.

Posted by absinthe | Report as abusive

I’d say your dressing up a swine with lipstick, but beauty is in the eye of the beholder, Felix. Please, no phone calls tomorrow, complaining of a brutal hangover and bacon in your bed.

Posted by jon_bonanno | Report as abusive

If day-to-day moves are meaningless (for the most part) then why should week-to-week be so much more meaningful?

that’s why the broad trendlines (low-end) start at 50 days…

Posted by CDNrebel | Report as abusive

It has been said elsewhere that markets that fail to drop on bearish news are not bear markets, and vice versa. Equities do appear to have shown some staying power with some rather bad news recently – some of it, like the Moody’s downgrade, not previously discounted – and has actually gained. Perhaps the market is trying to say something.

Posted by Gotthardbahn | Report as abusive

If the average american was stupid enough to sign mortgage contracts that they couldn’t afford, then they are stupid enough to invest in the market without really caring what’s going on in the world.

Posted by minipaws | Report as abusive


What’s easier to predict, market trends or the weather? Like the weather, we’re at the mercy of forces we don’t fully comprehend and that leaves us with making assessments on how to act on relatively current conditions. You may plant a seed in the Fall hoping for the right balance of sun and rain in the Spring, but the yield is less than certain.

Posted by benelux | Report as abusive
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