What’s Going On in the Markets? 5 Theories to Explain the Chaos
Fast money, China’s currency and oil prices are among factors influencing markets
By SAUMYA VAISHAMPAYAN
Updated Feb. 10, 2016 11:58 p.m. ET
Rising volatility this year in stocks, bonds, currencies and commodities has left investors scrambling to figure out what’s going on.
Market turbulence has further intensified this week, with stocks around the world suffering sharp selloffs.
As investors and analysts search for reasons for the global volatility, what seems plausible one day is quickly disqualified when the market veers in the other direction.
It wasn’t long ago that the plunge in oil prices seemed to be the biggest factor driving down equity indexes. But now the S&P 500 is down more this year than its energy subsector, both declines dwarfed by the plunge in financial shares.
Finding a widely accepted, overarching thesis has proved elusive, leading to the rise of multiple, competing, largely unsatisfactory explanations. Yet analysts and traders keep searching, hoping to devise a road map for the peaks and valleys that lie ahead.
“There’s a confluence of bad news around the world that really shakes investor confidence,” said Brad McMillan, chief investment officer for Commonwealth Financial Network, which oversees about $100 billion. “This volatility is perceived as being very unusual and scary, which is exacerbating the problem.”
So what is the best way to explain market moves? Here are five theories:
Blame the Fast Money
As the Federal Reserve prepared to raise short-term interest rates for much of 2015, investors bet that banks would pocket an expanding difference between what they charge on loans and what they pay on deposits. But financial shares have tumbled this year as investors pivoted to embrace “lower for longer”—a sobering forecast that rates won’t rise much for years. The Bank of Japan shocked an already reeling global financial sector when it cut rates into negative territory on Jan. 29.
The episode highlights both the gloom over the global economy and the whipsaw trading that has developed on major “macro” questions over the past year.
“The fast money moved into banks at the end of 2015 because they anticipated rate hikes, and then the fast money went out,” said Diane Jaffee, a senior portfolio manager at TCW Group Inc.
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