A year ago, I spoke to the University of Pennsylvania’s Michael Kearns about whether we might be able to do something to help prevent a much worse reprise of the May 2010 flash crash. The short answer is that no, we can’t — or won’t, in any case. But the longer answer is that there is something we could do, if we just had some will and a lot of money:
There’s a lot of uncertainty in the global economy, and that’s the kind of thing which makes stocks volatile. This morning, we’re seeing that volatility express itself, with global stocks all falling and US stocks down about 2.5% from where they closed yesterday.
By Mark Dow
The opinions expressed are his own.
While Felix is away, I will be posting off-and-on, as my day job permits. I hope to be able to put out at least a couple of posts more thoughtful than a market update, but let me at least start with an update for the time being.
Allan Sloan says that today is “scarier than 2008-09″ — and looking at the markets, he doesn’t seem far off. Yes, stocks are still much higher than they were at the height of the crisis, but relative to earnings the improvement isn’t all that impressive. Meanwhile the 10-year Treasury hit a new all-time low yield of 1.97% today, inflation figures notwithstanding, and gold too is hitting new highs above $1,825 per ounce.
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%.
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.
At 8:30 tomorrow morning, the July jobs report will come out, and it’s almost certainly going to be pretty miserable, with headline employment growth of maybe 100,000 new jobs, significantly less than needed just to keep up with population growth. The jobs report is rightly renowned as the most market-moving of all economic indicators, and so market action in the immediate wake of its release is closely watched.
Listen to anybody on Capitol Hill, and they’ll tell you that the debt ceiling debate is turning into a complete disaster, with the Republican rank and file such an inchoate mess that it increasingly seems as though no deal will get done at all. Look at the Treasury market, however, where the 10-year bond currently yields something less than 3%, and it looks decidedly sanguine; short-term debt maturing shortly after the drop-dead date of August 2 is similarly unaffected by the news from Washington.