US Financial Market Drama: Much Ado About Nothing
By Christopher Thornberg, PhD
This year started with a thud rather than a bang as financial markets across the globe saw major selloffs. Analysts liberally assigned the cause of the panic to fears about oil, fears about China, fears about terrorism, fears about deflation, fears about who knows what—perhaps fears about fears.
But whatever was driving the alarm appears to have faded. Major stock indexes have already regained much of the ground lost since the start of the year and interest rates on 10-year treasuries are heading back to the 2% mark. Hopefully, you were lucky enough to lock in a great rate on a ‘re-fi’ during the panic. If not, just wait, there will surely be another opportunity.
That prediction is based on the increase in the frequency of these sharp market downturns in recent years. This is the 4th time U.S. markets have seen a double-digit meltdown since the recession came to an end, including sharp sell-offs in 2010, 2011, last year, and now (I measure the sharpness of a market sell-off as the S&P 500 daily close relative to the high of the market over the previous 6 months. When the sell-off is more than 10% and lasts for more than one week, I count it as a major sell-off). This is unique in recent financial history.
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