It has not been a fun couple of days in the stock market.
On Monday, the Dow lost 588 points, capping the blue-chip index’s first-ever string of back-to-back-to-back days of 300-point declines.
Shortly after the market open on Monday, stocks were in a panic, with the Dow falling more than 1,000 points while the Nasdaq fell 7%.
The benchmark S&P 500 index was off by about 5% at its lowest point Monday morning.
The carnage in individual names was even more puzzling.
Dave Lutz at JonesTrading highlighted a few of the biggest losers early Monday morning in a note to clients after the closing, noting that stocks including Starbucks, MasterCard, Merck, Gilead, 21st Century Fox, Hasbro, and Aetna fell more than 17% early in the day.
Also grabbing headlines on Monday was West Texas Intermediate crude oil, which fell more than 6% to trade below $US38 a barrel for the first time in 6 years. Brent crude, the international benchmark, also fell about 7%.
But readers of this site and others will know that the discussion in and around markets right now is really just about one thing: price.
In a note to clients before the market open on Monday, analysts at Bespoke Investment Group highlighted that this obsession with price moves is indicative of a market that is sort of grasping at straws for reasons
“One of the first things that crossed our Twitter feeds this morning was an update on financial markets from a digital media organisation,” Bespoke wrote Monday morning.
(BI’s market update, for example, had a bunch of bullets about, you guessed it, price.)
“It had six bullet points. The first five were updates on price action, while the sixth was a vague hand-wave in the direction of China as a cause for the selloff. This is perfectly in-line with a market sentiment that has become obsessed with extremely short-term price collapses as generalists are totally unable to explain what’s happening. We’ve seen Fibonacci retracements, the end of QE, China, EM, commodities, and every other narrative under the sun applied with a gusto that we typically reserve for a fine bourbon and a hearty New York strip. Our point here: don’t confuse sentiment and price movement with actual explanation.”
And this is really the crux of the current confusion in markets right now: there is nothing to point a finger at.
There is no tech bubble bursting or subprime mortgage market imploding. No one is breaking new ground writing about the market’s jitters over China or the Fed or the world economy. China and the Fed have been at the top of investors’ minds for months, while worries over the global economy has basically been the
only constant in a post-financial crisis world.
And so what the media — like, for example, Business Insider — and actual market participants have to go on is to simply say what has happened without being able to say why.
A Bloomberg report on Monday night, for example, noted that the world’s 24 richest people saw their fortunes decline by a collective $US124 billion during today’s market sell-off. This is interesting. But again, this is still just about price.
In its note Monday morning, Bespoke continued by writing that as far as they are concerned, nothing about the current economic situation in the US has changed at all in the last few weeks.
“From our perspective, precisely nothing has changed about the US economic outlook since last week, or last month,” Bespoke wrote.
“It doesn’t matter that oil is below $US40, stocks are in the process of what looks like a correction from all-time-highs, or yields briefly sagged below 2% on the ten year Treasury overnight. If we are correct in our assessment of a well-employed, sustainably spending, and under-levered household sector in the US, there are now phenomenal businesses and other asset opportunities available for those willing to buy at these levels.”
But no matter your priors regarding how the US economy is doing, recent market action hasn’t credibly reinforced any one view.
And so we will continue to report and fixate on price, because that’s the only thing we really know for sure.