John Magrath, a partner and TwentyFour Asset Management, sent of us his thoughts on the massive moves in the U.S. markets in the past three trading sessions. To review, the market opened down more than 1,000 points after losing 530 on Friday and 358 on Thursday. (The market has since recovered this afternoon.) That’s a bigger drop (in terms of points) than the fallout from the Lehman rout. But this time feels different. Mark Holman, CEO, discusses why:
This current crisis (if we can call it that) is not so close to home, so maybe we are not feeling the effects as much. However are these moves that we are seeing consistent with an economy that is on the brink of pushing through a rate hike? Absolutely not, unless you think that the likely cause of the drop is the potential September rate hike, which is becoming less and less likely from a market stand point.
So something is wrong. Is it the Fed’s interpretation of the economy or is the market overreacting due to the lower liquidity summer markets? We think it is probably a combination of both. Having said that though, sharp moves such as these can very quickly dent confidence at both the corporate and consumer level, which can then very quickly feed into the real economy. Central banks will be very wary of these types of moves should they persist for any length of time.
Consequently it will be very interesting to hear what is being said at Jackson Hole at the annual economic symposium commencing on Thursday. Surely the September hike is off the cards now.
Read the entire blog post here.
Photo: World Resources Institute Staff