Last week was quite a ride on Wall Street. Unbelievably, the Dow traveled 22,253 points in one week — approaching 1x its own index value — I’d say that’s the definition of a wild ride!
Everyone is speculating about the trigger.
Other than the obvious reason — which is healthy markets aren’t supposed to go up 100% of the time like we have — two factors seem to have kicked things off.
One had to do with a short squeeze on an ETN (Exchange Traded Note) that tracks the inverse of volatility. The issue itself was rather harmless in that it did not directly affect underlying securities like some ETFs (Exchange Traded Fund) can. What wasn’t harmless, though, was it is a leveraged asset… which meant when the pendulum swung, it caused a pretty big short squeeze… which meant that people probably had to sell other assets — like stocks — to cover. So, ultimately, it’s plausible that these did have some affect in the market last week… selling pressure is, after all, selling pressure.
The other — which people consider the bigger culprit — was a reported surge in hourly earnings reported in last Friday’s (2/2/18) jobs report. While that signals a healthy economy, which of course is good for the stock market, it also signaled that interest rates might start rising… which, ironically enough, is actually historically good for the stock market, too, at least during the initial rising phase.
But, in last week’s case, people got flat out freaked out. Hence, the wild ride.
But, it appears that no one asked why hourly earnings surged. From ZeroHedge:
Well, not so fast, because as a closer look at the data reveals, the only reason why average hourly earnings rose, is because the total weekly hours worked posted a relatively steep decline, dropping from 34.5 in December to 34.3 in January, a 2.9% drop from the 34.4 last January.
What economists (and Wall Street analysts!) should care about is actual earnings power… and average weekly earnings actually declined from December to January.
Seems like no one wanted to let facts get in the way of a good panic.
P.S. Investor sentiment is always the biggest wild card in the deck. But, weekends are good circuit breakers in that regard. More and more folks are coming to the conclusion that a lot of what is underpinning the market is still intact. Readers of my blog know I track the price of oil… and oil has not only been behaving, but has been declining… which I believe bodes well for spending… which bodes well for corporate profits… which bodes well for the market.
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