Another Day in the Market

Fri, 2018/02/09 - 2:43pm | Your editor
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Now it's officically a correction if the Dow Jones remains down until the market closes. It may not. There now is an abundance of theories about why the fall occurred. My Swiss National Bank thesis has not been picked up by other analysts but many are blaming higher bond rates for having triggered the stock market fall. While the fall in bond prices as yield go up (because they move inversely to each other), the coordination of stock falls to bond market ones was slow getting going. It was more the likelihood of further rate hikes rather than their actual rises that started to stock selloff.

The impact on stock prices of the collapse in reverse-volatility plays (derivatives long on low volatility like XIV, the reverse of the VIX) is a technical factor being blamed for the continued share price weakness. It is probably being overstated. Whenever there is a crash in the stock market, pundits like to blame a technical factor. Among the culprits past are portfolio insurance; over-leveraged mortgage market losses; options strategies (put-buys or call-sells); and Wall Street bankruptcies ( in 2008-9's correction: IndyMacCIT; WaMu, Lehman Brothers, AIA, Merrill Lynch, etc.)

Blaming it on a technical factor absolves the market from having to blame itself for plummeting stocks. “It wasn't me”.

Or to blame the economic outlook for the bear market, which means it is a real danger.

Or for the US to blame the White House or Congress, for example for the looming rise in US government deficits and their pro-cyclical tax “reform”. Or the inexperienced new Fed Chair.

My own secret theory is that everyone knew it couldn't continue so they were trigger happy after the DJIA and the S&P 500 ran up the longer series of gains last year since the 1950s, which even I can barely remember. (Yesterday I was carded when buying hard cider, for the first time in about 40 years so I must be well-preserved, to use the French back-handed compliment.)

It is another day overladen with results, so enough chatter. We have results from Panama, Mauritius, Canada, and Japan, plus more news from other places. And a new stock pick in China which reported yesterday (our writer was waiting to be sure.)

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