Several times in the last few days, I've been asked what's wrong with the stock market? I guess it must be "wrong" not to set a new record high every other day? We're only a few percentage points from all-time highs, but that was a month ago - ancient history, I guess.
Yes, volatility in the stock market has increased, but that is a normal occurrence when the stock market is shifting gears. Over the last few months, there has been a lot of news for the market to digest. Oil has hit new lows. This redistributes money within the U.S. economy. Outside our economy, this sends some oil producers like Russia and Venezuela circling ever closer to the drain, causing geopolitical unrest. The dollar has hit new highes. This redistributes income from nations with expensive currencies, like the U.S., to nations with cheaper currency, like the European Union. Also, don't forget that economy is producing over 200 thousand jobs per month. (Interestingly, wages earned by farm workers are now growing faster than wages for high school students.) Don't forget that talks between Greece and the EU are going poorly, and "Grexit"" is becoming a real possibility.
Of course, the biggest adjustment for the market to swallow is the Fed finally letting interest rates rise, after six years of zero rates. Yesterday's removal of the word "patient" from the Fed's minutes does not mean the Fed is now impatient to raise interest rates. But, the market will eventually get comfortable with the idea that the Fed can now raise rates, because the economy is actually doing better, not worse.
And, no, the possibility of systemic collapse of the financial system is not becoming more likely. In fact, once the new rules on derivatives disclosure start in 2017, I will finally stop worrying so much about this.
Despite recent economic data that suggests the economy is stalling somewhat, it is not! It is shifting gears to grow more later. Worry about something else . . . like why you didn't keep your New Year's Resolution, for example. OK, why didn't you?
Yes, volatility in the stock market has increased, but that is a normal occurrence when the stock market is shifting gears. Over the last few months, there has been a lot of news for the market to digest. Oil has hit new lows. This redistributes money within the U.S. economy. Outside our economy, this sends some oil producers like Russia and Venezuela circling ever closer to the drain, causing geopolitical unrest. The dollar has hit new highes. This redistributes income from nations with expensive currencies, like the U.S., to nations with cheaper currency, like the European Union. Also, don't forget that economy is producing over 200 thousand jobs per month. (Interestingly, wages earned by farm workers are now growing faster than wages for high school students.) Don't forget that talks between Greece and the EU are going poorly, and "Grexit"" is becoming a real possibility.
Of course, the biggest adjustment for the market to swallow is the Fed finally letting interest rates rise, after six years of zero rates. Yesterday's removal of the word "patient" from the Fed's minutes does not mean the Fed is now impatient to raise interest rates. But, the market will eventually get comfortable with the idea that the Fed can now raise rates, because the economy is actually doing better, not worse.
And, no, the possibility of systemic collapse of the financial system is not becoming more likely. In fact, once the new rules on derivatives disclosure start in 2017, I will finally stop worrying so much about this.
Despite recent economic data that suggests the economy is stalling somewhat, it is not! It is shifting gears to grow more later. Worry about something else . . . like why you didn't keep your New Year's Resolution, for example. OK, why didn't you?
