Describing any given day in the stock market is like reading a recipe. There is a main ingredient, which has been marinating a long time. You add multiple unrelated ingredients and mix together, before slow-baking a whole nano-second and then serving it while blindfolded to perfect strangers in a restaurant.
Take yesterday for example - you remember it -- the Dow hit an air-pocket and dropped a whopping 394 points. It was all the more breathtaking, because the market had been so sleepy all summer, not moving more than 1% on any given day. In fact, that was one reason -- normal volatility had been repressed or too low for too long. After a lazy summer, Wall Streeters returned from the Hamptons and realized they needed to start trading stocks again.
However, the triggering event was one particular member of the Fed's Board of Governors, who has the reputation of being least anxious to increase interest rates. Friday morning, she gave a very hawkish speech, emphasizing her readiness to raise rates. The market began sinking rapidly. (I'm not overly-concerned about a quarter point increase whether in September of December. American businesses can handle that just fine.)
Another ingredient was the unexpected nuclear testing of a surprisingly large warhead in North Korea. Investors fret about the economic costs of an attack on South Korea. Not only could we lose demand for American-made products from one of the stronger Asian economies, but the U.S. could incur huge un-budgeted costs retaliating against North Korea. (Oh, by the way, millions of people could die.)
The market was also unsettled by the admission from Wells Fargo that 5,300 of its employees were fired for cheating customers. The bank agreed to pay a huge fine, but it surfaced a festering concern that the corporate culture of most banks has become rotten at the core. Instead of being "credit allocators" for the economy, they have become mere retailers.
Less obvious is my suspicion that Wall Street has already reached the conclusion that Clinton will win the presidential election and began the bull run that normally occurs late in years with presidential elections. Instead, the bulls began running during the Spring, assuming they knew who would win. Last week, however, brought reports of Trump's surging strength, and Wall Street let the bears exercise, giving up some of its earlier gains. (Don't assume Wall Street has a strong election preference for Clinton over Trump. It has a much stronger preference for certainty, regardless of who wins.)
What did not happen yesterday was that the stock market clutched its chest, crying "this is the big one!" There was no derivative blowup. There was no huge, unexpected bankruptcy. There was nothing new. It was just the beginning of another buying-opportunity.
Take yesterday for example - you remember it -- the Dow hit an air-pocket and dropped a whopping 394 points. It was all the more breathtaking, because the market had been so sleepy all summer, not moving more than 1% on any given day. In fact, that was one reason -- normal volatility had been repressed or too low for too long. After a lazy summer, Wall Streeters returned from the Hamptons and realized they needed to start trading stocks again.
However, the triggering event was one particular member of the Fed's Board of Governors, who has the reputation of being least anxious to increase interest rates. Friday morning, she gave a very hawkish speech, emphasizing her readiness to raise rates. The market began sinking rapidly. (I'm not overly-concerned about a quarter point increase whether in September of December. American businesses can handle that just fine.)
Another ingredient was the unexpected nuclear testing of a surprisingly large warhead in North Korea. Investors fret about the economic costs of an attack on South Korea. Not only could we lose demand for American-made products from one of the stronger Asian economies, but the U.S. could incur huge un-budgeted costs retaliating against North Korea. (Oh, by the way, millions of people could die.)
The market was also unsettled by the admission from Wells Fargo that 5,300 of its employees were fired for cheating customers. The bank agreed to pay a huge fine, but it surfaced a festering concern that the corporate culture of most banks has become rotten at the core. Instead of being "credit allocators" for the economy, they have become mere retailers.
Less obvious is my suspicion that Wall Street has already reached the conclusion that Clinton will win the presidential election and began the bull run that normally occurs late in years with presidential elections. Instead, the bulls began running during the Spring, assuming they knew who would win. Last week, however, brought reports of Trump's surging strength, and Wall Street let the bears exercise, giving up some of its earlier gains. (Don't assume Wall Street has a strong election preference for Clinton over Trump. It has a much stronger preference for certainty, regardless of who wins.)
What did not happen yesterday was that the stock market clutched its chest, crying "this is the big one!" There was no derivative blowup. There was no huge, unexpected bankruptcy. There was nothing new. It was just the beginning of another buying-opportunity.
