Why Markets Have Gotten So Jumpy
- 6 years ago
Why Markets Have Gotten So Jumpy
On Dec. 1, those prices were such that an investor would break even if from five to 10 years in
the future — December 2022 through December 2027 — consumer prices rose 1.78 percent a year.
The swings in stock prices appear to be intimately linked to movement in long-term interest rates, which in turn hinges on those expectations of inflation
and how the Federal Reserve will respond if inflation does rise.
Back to the drought metaphor: The farmers might still think
that another dry year is the most likely result, but if recent showers make them worry more about the risk of flooding, and they all try to buy insurance at the same time, this drives up the price.
Analysts at Deutsche Asset Management noted recently
that government bonds from the United States and Germany — generally considered some of the world’s bedrock safe assets — have been more volatile lately than bonds issued by emerging market countries like Indonesia and Mexico.
And the Standard & Poor’s 500 has moved more than 1 percent on eight of 16 trading days in February thus far, which
doesn’t make much sense if you’re looking for fundamentals-based reasons for such big moves in stock prices.
But after years and years of writing checks for flood insurance, our farmers might get a little
tired of throwing money away to protect against a risk that never seems to materialize.
The first few years of the drought, they probably adapted by shifting to crops
that could grow without much water, but at the same time they probably kept renewing their flood insurance.
On Dec. 1, those prices were such that an investor would break even if from five to 10 years in
the future — December 2022 through December 2027 — consumer prices rose 1.78 percent a year.
The swings in stock prices appear to be intimately linked to movement in long-term interest rates, which in turn hinges on those expectations of inflation
and how the Federal Reserve will respond if inflation does rise.
Back to the drought metaphor: The farmers might still think
that another dry year is the most likely result, but if recent showers make them worry more about the risk of flooding, and they all try to buy insurance at the same time, this drives up the price.
Analysts at Deutsche Asset Management noted recently
that government bonds from the United States and Germany — generally considered some of the world’s bedrock safe assets — have been more volatile lately than bonds issued by emerging market countries like Indonesia and Mexico.
And the Standard & Poor’s 500 has moved more than 1 percent on eight of 16 trading days in February thus far, which
doesn’t make much sense if you’re looking for fundamentals-based reasons for such big moves in stock prices.
But after years and years of writing checks for flood insurance, our farmers might get a little
tired of throwing money away to protect against a risk that never seems to materialize.
The first few years of the drought, they probably adapted by shifting to crops
that could grow without much water, but at the same time they probably kept renewing their flood insurance.