Did the Federal Reserve cause the market correction?

[joeea]

Did the Federal Reserve cause this week's market drop?

If so, how?

 

[HFWR]

Did the Federal Reserve cause this week's market drop?

If so, how?

Leverage? Perhaps many investments/projects/etc. do not “pencil out” at higher rates.

Rebalancing? Some natural turnover occurs when rates adjust.

The Fed has been telegraphing their moves, so why anyone would be “surprised”...

 

[HadEnuff]

knee jerk reaction?

 

[Maenad]

Emotional response - "Oh god! The yield curve is going to invert! The sky is falling!"

The Fed has been completely open about this, and businesses are doing no better or worse this week than last.

 

[Qs Laptop]

Did the Federal Reserve cause this week's market drop?

I doubt it. Maybe tangentially.

If so, how?

The Fed has raised interest rates. Everybody knew this was going to happen. They have announced they will be raising rates at least four times next year. This should not be a surprise.

A small surprise was the yield on the 10 year US bond rose faster than expected. This caused some investors to start to sell equities. Once that ball got rolling I figure automated selling algorithms kicked in and the selling continued. You can see this in the acceleration of selling that happened in the late afternoon hours.

Presumably these sellers are going to put their money in safer US bonds that now pay and extra 0.2% higher interest rates than they did in September. I'd be curious to see if there was a large inflow into bonds yesterday, today, and tomorrow. I kind of doubt it will happen.

I'd bet the market recovers somewhat tomorrow as earnings get reported.

 

[pb4uski]

Did the Federal Reserve cause this week's market drop?

If so, how?

IMO No. There has been no change in the Fed's posture or plans in the last week... just a market overreaction or perhaps a realization that prices were a little to rich so a pullback.

Even though the Fed did raise the federal funds rate by 0.25% in September, 0.25% isn't a lage enouh increase to have any significant impact on corporate profits... so there are other factors at play.

 

[W2R]

Nobody but politically motivated financial columnists would claim to have the slightest clue as to why markets go up and down. Following what people like that say is a good way to lose your shirt, IMO.

I mean seriously - - I just don't think that most investors would say to themselves, "Wow, interest rates have gone up as has been predicted for years and years. OMG, time to act!!! I need to IMMEDIATELY sell everything and stuff the cash under my mattress, who cares that inflation/CPI is up, I'm selling everything!" This is all fables and fantasies in the minds of those who have to complete a column before the deadline in order to get paid, and simultaneously push a political viewpoint.

I'd be more likely to believe that a very few BIG movers and shakers (billionaire investors maybe?) very likely created this drop artificially because they are looking for a buying opportunity.

 

[OldShooter]

The truth is that no one knows what causes these things, but there are thousands of pundits who authoritatively state their theories as facts. (If we knew what caused them, then we could forecast them. We don't and we can't.)

I tell the students in my Adult-Ed investing class to avoid reading this kind of stuff, but if they read it to substitute the word "trader" or the word "speculator" every time they see the word "investor." True investors are ignoring this market noise, just as they always have.

 

[pb4uski]

Nobody but politically motivated financial columnists would claim to have the slightest clue as to why markets go up and down. Following what people like that say is a good way to lose your shirt, IMO. ....

Welcome back Eva! She is so hot!

 

[W2R]

Welcome back Eva! She is so hot!

ROFL!!! Thank you, I think she's gorgeous and I'd give my right arm to actually look like my avatar instead of looking like a fat 70-year-old lady with white hair (which is my reality).

For those who don't know, long ago when the forum used different software, we used to have a set of default avatars that we could use. Eva was one of them.

 

[NYEXPAT]

It has been widely reported that Powell's comments were responsible and now the market expects him to "walk them back" next week.

 

[griffithee]

ROFL!!! Thank you, I think she's gorgeous and I'd give my right arm to actually look like my avatar instead of looking like a fat 70-year-old lady with white hair (which is my reality).

For those who don't know, long ago when the forum used different software, we used to have a set of default avatars that we could use. Eva was one of them.

Eva is purdy!!!!

 

[NW-Bound]

It has been known for a while that the Fed will raise rate. Same thing with inflation increasing, blah blah blah... That will put pressure on stocks, and bonds too.

But people hang on, trying to get a little more out of the stocks, which seem to hold. And when the thing starts tumbling down, people rush out the door, and it is not wide enough. It is time to panic.

Kind of like trying to predict an avalanche. The propensity builds up, and up, and suddenly it gives.

 

[kgtest]

When I listened to Powells FOMC speech live, and then his open forum the following day...everytime everyone asked if we are moving too quick, he was so stearn to respond "The fed see's no headwind in current economy, economy is doing fine, and inflation will normalize to 2.5 to 3 by the next four years." He had this chart where a bunch of committee voters projected this figure. I think he mentioned a possible .5 uptick in GDP this year but I could be wrong.

As a seasoned sailer, tracking the wind, the seas and the rig I'm in...I feel like a bunch of idiots just jumped off the boat when the ship heeled too much...some were wearing life vests, some were not and will drown at sea...but we should come back with solid earnings.

He mentioned P/E was reflective of the Tax Changes whatever that means. I personally feel P/E was a bit high and we might not totally recover in the next year. We knew it would be rocky...so hang on, and put that life vest on...the seas are comin.

PLUS didn't the browns win a football game, that right there is a sign the sky IS falling LMAO! KIDDING! (Sorry clevelanites? and fans).

 

[kgtest]

It has been widely reported that Powell's comments were responsible and now the market expects him to "walk them back" next week.

I recall them(an analyst) saying he would be speaking like up to 8 times in the next year. 2x more than predecessor.

 

[audreyh1]

Emotional response - "Oh god! The yield curve is going to invert! The sky is falling!"

The Fed has been completely open about this, and businesses are doing no better or worse this week than last.

Except the yield curve started seriously steepening again. That’s what made the stock markets sell off.

 

[Crabby Mike]

It has been widely reported that Powell's comments were responsible and now the market expects him to "walk them back" next week.

What I saw most "widely reported" was that the White House was blaming Powell. Not that they directly caused it either, but convenient to blame somebody they can't fully control.

 

[cbo111]

The Fed is the boogyman that is already being used to explain the drop in the DOW. Our President recently stated "the Fed had “gone crazy” and was “making a mistake.”

 

[Fedup]

I think it’s October. The market finds any excuse to take it down. Every year like clock works.

 

[gcgang]

Don't fight the Fed.

 

[joeea]

It has been widely reported that Powell's comments were responsible and now the market expects him to "walk them back" next week.

Huh? What comments? Where was that widely reported?

 

[joeea]

What I saw most "widely reported" was that the White House was blaming Powell.

To be fair, there was only one person at the White House doing that.

 

[TwoByFour]

Did the Federal Reserve cause this week's market drop?

If so, how?

The Fed normally has little to do with the interest rate for US Notes and Bonds, and by extension, corporate bonds and munis. All of those rates are determined by market forces, and currently the market is shunning bonds, which causes the price to fall and the yield to rise. During QE, the Fed intentionally lowered bond yield, but QE stopped in 2014.

As to why - one thing that has been widely reported is that the Chinese, who hold a huge amount of US debt, will start dumping their bonds in retaliation for the trade war going on. The thought of that might be enough to send the bond market reeling.

 

[NYEXPAT]

Huh? What comments? Where was that widely reported?

The really extremely accommodative low interest rates that we needed when the economy was quite weak, we don't need those anymore. They're not appropriate anymore," Powell said.

"Interest rates are still acommodative, but we're gradually moving to a place where they will be neutral," he added. "We may go past neutral, but we're a long way from neutral at this point, probably."

 

[Qs Laptop]

As to why - one thing that has been widely reported is that the Chinese, who hold a huge amount of US debt, will start dumping their bonds in retaliation for the trade war going on. The thought of that might be enough to send the bond market reeling.

China's "huge amount of US debt" held = less than 5% of all US debt.

What does "dumping their bonds" really mean? Redeeming them?

Would they really start redeeming US bonds years before maturity? Essentially earning next to nothing?