PMC Weekly Review - September 11, 2015
After the market turmoil of August, the shortened Labor Day week was markedly less volatile. Note the emphasis on less, however, given that several days had rather substantial market swings and continued global jitters extending from Asia to Europe to the United States.
The market’s often-stated theme is that investors are nervous about what, if anything, the Federal Reserve (Fed) will do about short-term lending rates at its upcoming Federal Open Market Committee (FOMC) meeting. Although that question has beguiled the markets for months, it is not clear that Fed uncertainty lies at the heart of recent volatility.
Instead, it may be more accurate to say that after many, many months of very low volatility in equities, stocks finally had their turn. Throughout the year, other asset classes (especially oil, commodities, currencies, and emerging market and high-yield bonds) have seen intense swings in sentiment and price, while equities remained fairly placid. Now global equities have hopped on the volatility bandwagon, and absent true macro-economic or financial system stress, this bout is likely to pass, as it did for other asset classes throughout the year.
And on the macro and systemic front, it does not appear that the ingredients are there for a major disruption. Never say never, but other than real and on-going questions about the arc of China’s economy, the global system looks to be status quo: stable, but with low growth and low interest rates. Whatever the Fed does or does not do in the weeks and months ahead should not alter that basic trajectory.
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