Business and Economics

More market volatility likely 3-31-18

Source: Buckle up   

Based on news from the Trump White House, the stock market has reacted with much volatility. In February stocks sank on promises of American tariffs on imported steel. Then, the news of possible future tariffs against a range of Chinese goods caused a further drop on March 22nd. Then reports that China and America were making progress in trade talks caused the S&P 500 index to rise by 2.7% on March 26th, its best day since August 2015. It promptly fell again by 1.7% the next day.

From this article: "...this year has seen a number of worries come to the fore. “The entire complexion of this stock market is changing before our eyes,” says David Rosenberg, a strategist at Gluskin Sheff, a Canadian wealth-management firm. Central banks are withdrawing some of the monetary stimulus that has supported the market rally since 2009. And economic data have not been as positive as before. Citigroup’s “surprise” index, which is based on whether actual numbers turn out to be better or worse than forecast ones, has dropped back from the high levels reached at the end of last year. The price of copper, a commodity that is particularly sensitive to economic conditions, has fallen by 9% so far this year. The prospect of further interest-rate increases has taken its toll on bank stocks, with America’s KBW NASDAQ Bank index dropping by 8% in the week to March 23rd. Led by the FAANGs (Facebook, Apple, Amazon, Netflix and Google), the S&P 500 Information Technology index managed a five-year annualised return of 18.5%. But controversy over the use of Facebook data in the 2016 presidential election prompted a reversal. Fears of extra regulation caused more losses on March 27th. The index has dropped by 5.2% so far in March."

Other indicators: The ten-year Treasury-bond yield has already risen from 2.4% at the start of the year to 2.79%, in part because the market expects America’s tax cuts to lead to a lot more debt being issued. As a sign of tightening liquidity conditions, the real growth rate of the global M1money-supply measure has slowed sharply, from more than 9% to less than 4%, in recent months. Another warning sign is that the gap between short-term and long-term interest rates has shrunk. In the past, a flatter yield curve has signalled an impending economic slowdown.