The Uber driver. The soccer coach. The guy at the liquor store and maybe even the gardener. If your job is in any way connected to the stock market, you’ve probably had some financial questions posed to you in the past couple days from some unlikely sources. When things go nuclear like this, everybody is searching for answers… something to cling to during the turbulence.
What do you tell them? Well, this probably won’t help your barber’s stress levels: Odds are that this thing gets worse before it gets better. Bottoms aren’t made on Fridays, and history offers us a pretty stark warning about these kinds of declines on the S&P (see “the chart” below).
Mohamed El-Erian, chief economic adviser at Allianz SE, wrote a piece for Bloomberg in which he explained how markets might have built up tolerance to government measures.
“Yes, the People’s Bank of China could loosen monetary policy; and, yes, the Fed could hold off hiking rates in September,” he wrote. “But the impact on global growth would likely be limited, unless these steps are accompanied by a more comprehensive policy response. Otherwise, prices need to fall a lot more before wary investors get off the sidelines.”
But instead of focusing on what just happened and what very well could happen in the coming days, it’s probably best to heed the advice of Cullen Roche of the Pragmatic Capitalism blog and just step away. Turn off your various media faucets and go outside until this market storm blows over.
“All of this information isn’t making us better investors. It’s making us worse. Because it’s feeding off of every emotion we have,” he wrote in a post. “And when you let your emotions drive your investment strategy, it always derails. Also, seriously. Stop reading this.”
I know you won’t, though. So buckle up and proceed. Stocks are getting taken out to the woodshed again, and all the attention will now turn to how the Fed will deal with the recent rout. Word from Wyoming awaits, but there’s plenty of selling to navigate in the meantime.
Key market gauges
It’s plain ugly. Losses for U.S. stock futures are accelerating, pointing to a nasty extension of Friday’s bleeding, with Dow YMU5, -3.94% futures dropping more than 600 points. Everyone’s piling into the yen USDJPY, -2.11% but everywhere else it’s red ink. Gold GCV5, -0.03% is down just a little, but palladium PAU5, -6.21% and copper HGU5, -3.54% are getting hit hard. Crude CLV5, -3.66% is dancing around $39 a barrel. China SHCOMP, -8.49% got obliterated with an 8.5% loss and took down the rest of Asia ADOW, -5.11% with it. Europe SXXP, -4.70% isn’t escaping the flood of sellers, either.
Of course, some have had enough China to last a while:
The Fed’s annual conference kicks off later this week in Jackson Hole, Wyoming. The real star arrives Saturday, when vice chairman Stanley Fischer talks about “U.S. inflation developments.” Here’s why it should tell us what we need to know about rate hikes.
$13 billion — that’s how much the Associated Press said Donald Trump would be worth had he just put his money in an index tracking the stock market and skipped making all those deals. Instead, the Donald’s net worth is a mere $4 billion, according to Forbes. Read how Trump’s campaign is about to unleash the Great American Stupid, from Rolling Stone.
“It seems that there needs to be a change in that kind of attitude and behavior on the part of the U.S. So the situation is different with the U.S.” — Iran’s Foreign Minister Javad Zarif, on why there won’t be a U.S. embassy yet even after the U.K. reopened its embassy in Tehran on Sunday.
Shares of Apple AAPL, -5.92% are falling in premarket trading, on track to open at their lowest since Oct. 21, after dropping into bear-market territory on Friday.
Netflix NFLX, -11.90% shares are also dropping before the open, even though the streaming-media company is expected to reveal it’s allied with SoftBank for a Japan launch.
This graphic was tweeted out by Josh Brown, who gave credit to Michael Batnick, a fellow blogger and his co-worker at Ritholtz Wealth Management. There’s not much to say that isn’t spelled out for you. Basically, it seems 5% drops reach at least 10%, more often than not. (h/t Abnormal Returns).
While it’s true China’s stock market can’t really go down forever, those trying to pick an entry point are playing with fire, as evidenced by the latest free-fall. Aswath Damodaran, professor of finance at the Stern School of Business at NYU, says you’d be better off staying clear altogether.
“I am hard pressed to make a case for investing in Chinese stocks, if you have a choice of investing in other markets, even after the market drop of the last few months,” he said.
Damodaran lays out his case in a lengthy post, but he sums it up by saying a healthy market needs both investors and traders, and China is really at the whims of the latter. “A market dominated by traders will be volatile, with price movements driven by mood, momentum and incremental information, and will be subject to booms and busts,” he said. “I would characterize the Chinese stock market as a pricing market, where traders rule and investors have long since fled or have been pushed out.”
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