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The Mini Stock Market Crash and Why it Matters
They’re unpredictable, volatile and prone to sharp emotional swings. They have short attention spans and find change difficult because they are frequently scared of new things or overly enthusiastic about them. They’re impulsive, demand attention and throw tantrums when they don’t get what they want.
I’m not describing toddlers but traders.
This week’s financial market meltdown had a lot in common with a toddler tantrum. The catalyst was Friday’s moderately disappointing jobs report, combined with the Federal Reserve Board’s failure to cut rates in anticipation of those disappointing numbers. Yes, markets can often signal a faltering economy, but there are better signs elsewhere. A nuanced reading would note that the Fed signaled a willingness to cut rates, that July’s employment numbers may have been distorted by Hurricane Beryl and that the rise in unemployment reflected a spike in temporary layoffs.
But toddlers see best in simple terms. So too do traders, who spat out their pacifiers and revolted, driving stock prices down by 3 percent on Monday. They also drove long-term interest rates down sharply in anticipation of Fed rate cuts. The VIX — a measure of how fearful the market is of future market gyrations — rose on Monday to worrying levels.
A good tantrum doesn’t just annoy parents, it also draws the attention of onlookers. Some drew parallels with the 1987 stock market crash, and others described the Fed as “behind the curve.” Jealous siblings tend to add fuel to tantrums, and indeed, former President Donald Trump posted on Truth Social that “stock markets are crashing” and “jobs numbers are terrible.” The Republican National Committee tried to make #KamalaCrash trend. (Just so you know, even July’s anemic employment growth was higher than the average through the Trump presidency, which was hit by big losses at the start of the pandemic. Also under President Trump’s watch, the S&P 500 experienced larger daily declines 21 times.)
I’m not describing toddlers but traders.
This week’s financial market meltdown had a lot in common with a toddler tantrum. The catalyst was Friday’s moderately disappointing jobs report, combined with the Federal Reserve Board’s failure to cut rates in anticipation of those disappointing numbers. Yes, markets can often signal a faltering economy, but there are better signs elsewhere. A nuanced reading would note that the Fed signaled a willingness to cut rates, that July’s employment numbers may have been distorted by Hurricane Beryl and that the rise in unemployment reflected a spike in temporary layoffs.
But toddlers see best in simple terms. So too do traders, who spat out their pacifiers and revolted, driving stock prices down by 3 percent on Monday. They also drove long-term interest rates down sharply in anticipation of Fed rate cuts. The VIX — a measure of how fearful the market is of future market gyrations — rose on Monday to worrying levels.
A good tantrum doesn’t just annoy parents, it also draws the attention of onlookers. Some drew parallels with the 1987 stock market crash, and others described the Fed as “behind the curve.” Jealous siblings tend to add fuel to tantrums, and indeed, former President Donald Trump posted on Truth Social that “stock markets are crashing” and “jobs numbers are terrible.” The Republican National Committee tried to make #KamalaCrash trend. (Just so you know, even July’s anemic employment growth was higher than the average through the Trump presidency, which was hit by big losses at the start of the pandemic. Also under President Trump’s watch, the S&P 500 experienced larger daily declines 21 times.)
https://www.nytimes.com/2024/08/07/opinion/why-financial-markets-are-like-toddlers.html?unlocked_article_code=1.BE4.cJUF.oN1vBco0g49p&smid=nytcore-ios-share&referringSource=articleShare
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