Why are the markets down today? No reason.
By Ezra Klein,
Why are stocks diving today? Oh, no reason in particular. Or maybe every reason in particular. Which is pretty much the same thing.
Every major paper in the country is leading with the Dow’s fall. But not one has a good explanation for why the trap door opened today as opposed to, say, last Tuesday or next Wednesday. Here at the Washington Post, Neil Irwin, Michael Birnbaum and Sarah Halzack attribute it to the Federal Reserve saying they see “significant downside risks” to the economy and European banks appearing troubled. The New York Times gives events the same spin. So does the Wall Street Journal.
But is there anyone anywhere who doubted that the moment was suffused with significant downside risk? Or that European banks were troubled? If the market hadn’t priced that in, then that’s a whole new reason to lose faith in the markets.
Nor is it clear that the Fed story even makes sense. As Reuters’ Felix Salmon notes, a gloomy Fed forecast is “normally a good sign for markets, since it implies that monetary policy will remain looser for longer.”
Bloomberg also blames the Fed, but they suggest that market is worried that “central banks are running out of tools to prevent a recession,” not that a gloomy outlook unnerved investors. But based on what evidence? The Federal Reserve didn’t declare its impotence yesterday. As this morning’s note from Goldman Sachs argued, “the easing action was more aggressive than our expectations or the market’s.” Nor is there any reason to think that the Federal Reserve is any less empowered to combat another recession than they were last week.
Which is not to say that the bad news begins and ends with central banks. There was some bad manufacturing data from the eurozone, and FedEx’s earnings were low, and there are some concerns about Chinese growth. But given the grim state of the world economy, none of that news is unusually bad. If you left every data point unchanged but the market hadn’t dived, you wouldn’t be seeing stories tomorrow wondering about the Dow’s unusual resilience.
Salmon’s headline is that “there’s no reason why stocks are down today,” and perhaps that’s right. Or perhaps it’s exactly wrong, and stocks are down today not because any one thing is so bad, but because everything is so bad, and when everyone is scared, sometimes people begin running without quite knowing why. Either way, there’s no really good reason that stocks are down today as opposed to some other day. The squiggly line squiggled down. That’s all there is to it.