Global Stock Markets Gyrations

Elected officials and government officials are trying to calm the financial markets. In the U.S., President Trump, Treasury Secretary Steve Mnuchin, and various Federal Reserve bank officials are the latest to weigh in. They’re wasting their time. Example here.

I have news for them, and you: market participants don’t care what you say. They do what they think is right. Market participants include traders, institutional investors, sovereign wealth managers – all over the world.

Financial markets – stocks, bonds, commodities, currencies – do not react to current news items. They have their own cycles based on sentiment.

If you look at various global stock market indexes, you can clearly see they began a correction in January, not in the Fall of 2018. The U.S. stock market made a nominal new high in September over its January high then began its precipitous decline. Other advanced economy stock markets, as represented by the EFA ETF never made a new high over the January level. Emerging markets, as represented by the EEM ETF fell even faster than the advanced economy stock markets.

The financial media – the business channels on television, the media outlets that carry their stories – all basically say the same thing. And it changes by the day, but all contradict themselves.

When the market goes up and some kind of negative news is reported, the media say “the market shrugged off the bad news and rose today”. When the market declines, they are certain it was caused by whatever news they can find as a way to justify their claim.

The bottom line is that the majority of politicians, government officials, media people, and market participants do not know what caused financial markets to act the way they do.

 

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