Daily Management Review

A Piece Of Good News Was The Case Of The Most Recent Sell Off In The U.S. Market


02/10/2018




A Piece Of Good News Was The Case Of The Most Recent Sell Off In The U.S. Market
It was last Friday morning that the wheels started coming off the stock markets.  It was at that time that reports of an increase in the average hourly earnings for the month of January in the U.S. had exceeded the expectations was published by the Labor Department of the country. The reports stated that the rate of increase was 2.9 per cent during the last one year.
 
However, that bit of news was not accepted very well by the markets even though it would have delighted workers who have bene reeling under conditions of stagnant pay hikes for nearly a decade. Investors were concerned about the possibility of an increase in inflation across the board due to the rising wage and this was amongst the worst fears of the investors in the market.
 
And a rising inflation would mean that the rates of interest would have to be hiked by the Federal Reserve faster than the market had been expecting. This signal was ominous for the market when considering the fact that all of the stock gains that had been made over the last nine years was fueled by low rates of interest.
 
It was then that there was action in the financial markets. Since that time on Friday, it has been a rough ride of the equity markets and there was an immediate decline in the stock market futures.
 
This led to substantial damage to the stock markets even though there was very limited impact on the government bond yields. Additionally, the manner in which the bit of good news was treated as bad news is a forerunner to the potential bad times for the markets and a classic signal about the late stages of a bull market.
 
The long-term implications were however being pondered upon by economists.
 
"Wages rose much more sharply than had been anticipated and, when combined with anecdotal reports from the corporate sector, the evidence suggests pretty clearly that the rise is both sustainable and likely to accelerate in the medium term," Eric Winograd, U.S. economist at AllianceBernstein, said in a note after the government released its jobs report Friday. "The magnitude of the move in January may be exaggerated, but the trend is likely to persist."
 
Winograd took the issue further and indicated that the condition of the market would force the fed to enhance the speed of the rate hikes and indicated that the number of rate hikes would be four this year instead of the anticipated three.
 
Markets are anticipating at least a post-Fed life even though they may not completely agree with the analysis.
 
"We are rapidly approaching the point at which low rates will no longer provide support to the equity market," Winograd said. "Recent increases in rates mean that financial conditions are tightening, and that will make the case for equities much harder to make at current valuation levels."
 
(Source:www.cnbc.com)






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