Friends
As expected, volatility is heightened as we are seeing some rather larger intraday swings. Earlier in the day the market averages were up 1% to 2% with the Dow itself up several hundred points. But after a weak 10-year Treasury Note auction, stocks sold off all the way into negative territory. Remember as the U.S. deficit continues to climb, the Treasury’s refinancing needs continue to grow. Can long term interest rates continue to move lower as the supply of bonds that the Treasury needs to sell continues to climb? Today’s lack of demand was disconcerting and a bit surprising to the markets. If demand is strong rates can remain muted, but if demand is weak it takes higher rates to attract buyers.
Anyway, by the close the Dow Jones Industrial Average was down 234 points to finish the day at 38,763. The S&P 500 was down 40 points to close at 5,199. The Nasdaq Composite Index was down 171 points to close at 16,195. Gold was down $4 to trade at $2,427, while oil was up $2.21 to trade at $75.41 per barrel, WTI.
One more thought on Monday’s decline in stocks. Some pundits were throwing the “crash” word around and many were predicting recession. I saw the crash of 1987 up close and personal. Just like this week’s downturn we had a very bad day the Friday before Black Monday. But, despite the fact that this past Monday we saw a point drop twice the size of 1987, in percentage terms it wasn’t even close. In 1987 the Dow fell more than 20% on that Monday. This past Monday the Dow was down less than 3%. And, by the way, pundits were sure the 1987 crash would be followed by a recession, if not a depression. We did not have a recession after the crash of 87.
But, as I mentioned yesterday, we did have an earthquake on Monday, and we will see aftershocks like we did this afternoon. Oh, and by the way, we will have a recession at some point. It might be now, or it might be later. As much as the Fed would like to smooth out the business cycle, free markets produce boom and bust cycles. That’s the way it has always been. In the meantime, let’s see how the rest of this week plays out.
Have a nice evening everyone.
