FSC Commentary regarding the current stock market declines
It’s very rare that a stock market reacts badly to excellent news but the fact is that this is exactly the scenario we find ourselves in today.
Last Friday the 2nd of February 2018 the United States office of public statistics announced that the jobless figure for the USA workforce had come in much better than expected, they also stated that wages were rising ahead of expectations. Both of these factors combined with a fast growing USA economic backdrop fuelled the “bears” to come out and start a forest fire of commentary predicting that USA Inflation was about to go into overdrive, this would push the Federal reserve Banks to prematurely increase interest rates in an effort to cool the markets and stop the demand on cash from overheating the American Economy.
It’s incredible that this “Flash Crash” hasn’t happened before now. I say this because if we look at the meteoric rise in the value of the Dow Jones Industrial Index from March 2008 when it stood at 6,627 basis points to its current value on 15th on January 2018 of 26,072 basis points. This represents a growth of +293.4%. This is staggering growth, which happened almost without any corrections.
It therefore makes sense that at some stage the markets would need to take a breather and some degree of “profit taking’ was going to happen. The thing that makes my blood boil is that the so called “professional Press and television commentators” seem to take great pleasure in profoundly stating that the 1100 point drop on Monday 5th February was the “biggest points drop since the financial meltdown of the mortgage and bank recession of 2005-2008”. What they obviously fail to accept is that an 1100 basis point drop when the markets are at 6000 is a massive drop, but when the markets are at upwards of 26,000 points, a drop of 1100 is a correction of less than 5%.
What is absolutely sure is that the UK FTSE100 index is proving to be one very happy and robust index, at mid afternoon on 6th February 2018 our own domestic top 100 index was still trading at about 7,200 basis points and was only 1.85% down, we are showing more resilience than most other markets.
What must also be accepted is that Oil prices, commodities, corporate bonds and Gilt Yields and just about every other market tradable index has also taken a hit.
On the currency and Foreign Exchange markets we have seen hardening of rates and the pound sterling appears to be fairing pretty well.
In Conclusion, I would say that this “Flash Crash” is nothing more than a long overdue technical correction and once the Bears recede back into their caves the Bulls will be back out buying up the stock at a somewhat discounted value and order will again be restored for the next round of stock price rises.
Please note that this article is the opinion of Frank S Cochran
Frank S Cochran