Felix Salmon

Chart of the day, global equity market edition

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I love this global equity snapshot from Bloomberg’s Michael McDonough. For one thing, it clearly shows how European bourses are in much worse shape than those in the U.S. First look at the green dots in the little 52-week sparklines: the American and European highs weren’t all that far away from each other, chronologically speaking. And then look at the red dots: every exchange in Europe is hitting new 52-week lows, usually quite dramatically. By contrast, the U.S. indices all have their red dots over to the left: we still haven’t even dropped back to where we were a year ago.

Lessons from stock-market volatility

Didja see? Stocks went down, and then they went back up again. If you just spent the entire period lying in blissful ignorance on a beach, then you would have saved yourself a lot of stress and panic. And there was very little in the way of actual news, either. The scandal isn’t that S&P might have told banks and hedge funds it was going to downgrade the US: the scandal is that S&P told everybody, repeatedly, that it was going to downgrade the US, and the markets ignored the news until it actually happened. Similarly, there’s precious little actual news in the FOMC statement — certainly not enough to move the market by 5%.

The difference between S&P and Moody’s

Amidst all the downgrade talk, one crucial point has been largely missing: there’s a very good reason why it was S&P, and not Moody’s, which downgraded the US. It’s this: the two companies don’t measure the same thing with their credit ratings.

Buy stocks, sell bonds

S&P downgraded the U.S. on Friday evening; the markets then had all weekend to work out what that meant, with the verdict arriving when markets opened Monday morning: stocks fell about 1.5% or so. That was about right, it seemed to me: the downgrade was important enough to take seriously, but not important enough to panic about.

The downgrade FAQ

I’ve received some fantastic responses to my post about the S&P downgrade, so let me answer a few of the questions raised. Call it a downgrade FAQ:

The credibility and integrity of S&P’s ratings action

Treasury’s official response to the S&P downgrade has arrived, and it makes for pretty depressing reading. Treasury’s taking a shoot-the-messenger approach: S&P made a mistake in its debt-sustainability calculations, they say, and therefore “the credibility and integrity of S&P’s ratings action” must be called into question.

Why the S&P downgrade was delayed

The S&P downgrade noise out of Washington right now is decidedly unclear; most of it seems to be confined to Twitter, with this being one of the few exceptions. But the general understanding is that S&P decided to downgrade the US, told the White House, got serious pushback, and ultimately — for the time being — did nothing.

Felix TV: Time to chill out

Jason Varone was not impressed by this video. “I guess you don’t know anyone trying to retire?” he tweeted in response.

How stocks react to the macroeconomy

Mohamed El-Erian has the best explanation of what happened in the markets yesterday. First and foremost, there were “technical factors”. This doesn’t mean lines on charts and head-and-shoulders patterns and similar astrological nonsense, but rather the dynamics of where investors’ money was being held and the amount that the market would fall given a modest downward nudge. Sometimes that number is tiny, but it can fluctuate a lot, and yesterday it just happened to be huge.