06 Feb My take on what just happened in the markets
By Tom Dupree, Jr.
Nearly 40 years in the investment business
As you may be aware, over the last three trading sessions both the S&P Index and the Dow Jones Industrial Index have been down precipitously. At this writing the S&P has made a nearly 10% correction from its recent high, and the Dow is in similar territory. Why did this happen, especially when investors were so outright joyous over the things President Trump and his rough and ready sidekicks are doing with the economy? Why, these were things even DEMOCRATS could admire, like the tax plan. Why would the market pick a time like this to go kerflooey?
Looking at it in hindsight makes it obvious. Whenever in any situation, you feel as if you are investing with the crowd and the crowd cannot be wrong, you are in danger. During January the Dow Jones moved up 1000 points in a week! The agreement among crowd players became so convincing and profitable that anyone willing to play had a great chance at the craps table, er stock exchange I mean.
When something appears failsafe, it lures players in, and for the weeks preceding the recent drops it appeared that investing in the S&P was a failsafe operation. It isn’t always known that all kinds of securities can act really ugly at times, and they can target unsuspecting folks.
The fact that interest rates might increase was ignored and has had a deleterious impact on the stock market. Partially, this is because it appears due to the shortage of qualified workers the ones willing to work are demanding more money which is giving a nudge that thing called inflation, the bane of all bond portfolio managers. We are seeing it in the yield of the 10 year US Treasury bond having gone to a 2.85% yield to maturity. This completely freaked out the stock markets. Everywhere.
We don’t appear close to a recession because companies are reporting record earnings right and left. So perhaps things are not so bad.
Time will tell if the recent rout turns into something bigger. In the meantime, we got earnings!
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