October 10, 2018: Bad Day In The Markets

Jan 2016
39,596
35,398
Colorado
#1
Kind of a Black Wednesday in the markets, and so far, this is shaping up to be a Black October. And if you are anything of a market historian, you probably know that October is a month that historically makes investors nervous. Volume was very high in the stock markets today, and people were selling first, and asking questions later.

The Dow Jones fell 831.83 points, a 3.15% decline, to 25598.74. Some folks here, I think, were expecting it to break over 27000 just a week or so ago.

The broader S&P 500 fell 94.66 points, a 3.29% decline, to 2785.68. More than 450 of the 500 stocks in this index fell.

Worst hit was the tech-heavy NASDAQ index, which fell 315.97 points, a 4.08% decline, to 7422.05.

What's going on? Well, interest rates are rising. Rapidly. This is the predictable result of over-stimulating an economy with large tax cuts and increases in federal government spending, at a time when the economy manifestly did not NEED such stimulation. We have been GOOSING the economy, so OF COURSE interest rates are going to rise in such an economic environment. It is the internal contradiction of Trumponomics that I have been trying to warn people about all along. Shrug.

And, of course, investors are also growing increasingly concerned about the ramifications and repercussions of the intensifying Sino-American trade war, and growing Sino-American tensions in general. Rising input prices for many American corporations are squeezing their profit margins, even though some of those increased costs, triggered in many cases by Trump's tariffs, are being passed on to America's consumers...…

The yields on America's ten-year government bonds have passed 3.2%, and 30-year mortgage rates have zoomed past 5%. In many parts of the country where we have seen a mini-housing bubble, that bubble may have peaked, the Front Range of Colorado being a case in point.

Oh, and those rising interest rates are going to make it much more expensive to finance America's ballooning national debt......
 
Mar 2012
50,323
33,113
New Hampshire
#2
Why doesnt the market ever factor in interest rate increases? Fed chair announced last week exactly what the intent was and when they would be increased. Why today?
 
Jan 2016
39,596
35,398
Colorado
#3
Why doesnt the market ever factor in interest rate increases? Fed chair announced last week exactly what the intent was and when they would be increased. Why today?
These are good questions. Let me ponder them for a while before giving some off-hand answer. Might want to see what people are saying tomorrow morning. Not sure if there was a particular event or news story that triggered the big fall today....as opposed to, say, yesterday.
 
Likes: bajisima
Mar 2012
50,323
33,113
New Hampshire
#4
These are good questions. Let me ponder them for a while before giving some off-hand answer. Might want to see what people are saying tomorrow morning. Not sure if there was a particular event or news story that triggered the big fall today....as opposed to, say, yesterday.
Imagine the storm might have something to do with it as well? Also October tends to be a nasty month all the time it seems. Probably no simple answer.
 
Likes: BigLeRoy
Dec 2006
8,658
10,677
required field
#5
I never follow this stuff, but I wouldn't be at all surprised if the markets remain jittery at least through November 6.
 
Jan 2016
39,596
35,398
Colorado
#6
Imagine the storm might have something to do with it as well? Also October tends to be a nasty month all the time it seems. Probably no simple answer.
Possibly. I mean, they thought it was going to be a relatively minor Category 2 storm, and we all wake up this morning and find that it might even be close to a Category 5 monster storm.....
 
Oct 2013
244
123
Upstate New York
#9
Kind of a Black Wednesday in the markets, and so far, this is shaping up to be a Black October. And if you are anything of a market historian, you probably know that October is a month that historically makes investors nervous. Volume was very high in the stock markets today, and people were selling first, and asking questions later.

The Dow Jones fell 831.83 points, a 3.15% decline, to 25598.74. Some folks here, I think, were expecting it to break over 27000 just a week or so ago.

The broader S&P 500 fell 94.66 points, a 3.29% decline, to 2785.68. More than 450 of the 500 stocks in this index fell.

Worst hit was the tech-heavy NASDAQ index, which fell 315.97 points, a 4.08% decline, to 7422.05.

What's going on? Well, interest rates are rising. Rapidly. This is the predictable result of over-stimulating an economy with large tax cuts and increases in federal government spending, at a time when the economy manifestly did not NEED such stimulation. We have been GOOSING the economy, so OF COURSE interest rates are going to rise in such an economic environment. It is the internal contradiction of Trumponomics that I have been trying to warn people about all along. Shrug.

And, of course, investors are also growing increasingly concerned about the ramifications and repercussions of the intensifying Sino-American trade war, and growing Sino-American tensions in general. Rising input prices for many American corporations are squeezing their profit margins, even though some of those increased costs, triggered in many cases by Trump's tariffs, are being passed on to America's consumers...…

The yields on America's ten-year government bonds have passed 3.2%, and 30-year mortgage rates have zoomed past 5%. In many parts of the country where we have seen a mini-housing bubble, that bubble may have peaked, the Front Range of Colorado being a case in point.

Oh, and those rising interest rates are going to make it much more expensive to finance America's ballooning national debt......
I'm wondering what impact this will have on the top 1% in this country? What will Trump's excuse be for this drop? I know this has happened prior during his administration but will we recover this time fully?
 
Jan 2016
39,596
35,398
Colorado
#10
I'm wondering what impact this will have on the top 1% in this country? What will Trump's excuse be for this drop? I know this has happened prior during his administration but will we recover this time fully?
Well, I might have predicted this: Trump is blaming the market turmoil on the Fed. The Federal Reserve. He said he thinks "the Fed has gone crazy". Said he was disappointed in Fed Chairman Jerome Powell (who he appointed after declining to re-nominate Janet Yellen), but had no plans to fire him. [At least not yet.]

Here is what I imagine Jerome Powell WISHES he could say to Mr. Trump:

"President Trump, it is your loco policies that are FORCING the Federal Reserve to raise interest rates at this pace. By over-stimulating the economy with wildly expansionary fiscal policy at a time when the economy does not need such stimulation, you are over-heating the economy. This, along with your tariffs and trade wars, are increasing the inflationary pressures in our economy, and so we MUST raise interest rates, to ward off the threat of rising inflation, and to reach a level of more normal interest rates, to prepare for the inevitable next downturn in the economy."
 

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