Fears for Profit, Not Consumers
Terry H. Schwadron
Aug 8, 2024
To non-experts like me, gyrations in the global financial markets, even big changes virtually overnight as we saw this week, say more about immediate corporate profit than they do about a lasting state of national economies.
They have happened sporadically, and usually require a bit of patience to resolve the periodic re-balancing of estimated worth for company holdings. Just yesterday, markets showed stocks and investment plans recovering some of what had prompted market watchers to overreact the day earlier.
What stood out in the relative suddenness and depth of drops in our markets as well as those overseas was the herd mentality to respond to immediate financial gain, not tomorrow’s economic health or any concern about jobs or consumers.
Indeed, once we could get beyond over-excited headlines about dropping portfolio values, we have the same real-economic conditions as were true a week or a month ago, as our own investment adviser sought to reassure us.
Nothing about the suddenness about the stock market response is going to change the price of milk and eggs, though fuel prices clearly are directly linked to international market trading.
Still, none of that kept Donald Trump from instantly blaming Kamala Harris for creating crash conditions, or for business leaders to start throwing around the “recession” labels, for news headlines with exclamation points that together all feed more a sense of foreboding than the snapshot from the fifth inning of a longer game.
Lobbying the Fed
By all accounts, issuance of a single U.S. jobs report in the middle of summer — one that looked a lot like the same month a year ago — tripped enough fear of “slowdown” that selloffs triggered price drops that spread like wildfire across international market lines. Concerns about differences in currencies amplified the effect, with each market reacting to the other. Unease about “futures” profits led the way.
In the U.S., the jobless numbers are low and remain low; the economic measures used by the government remain relatively unchanged from what are reported to be “positive” about general inflation. There were fewer jobs added this last month than in previous months, but we’re still adding jobs, and the overall rate seems more a factor of how many workers say they are no longer seeking jobs. There is little connection with day-to-day supermarket or health prices, but discernible links to the price of mortgages and auto lending.
In some sense, this was another cry from the worldwide business community for the U.S. Fed to lower borrowing rates, to ease and invite more money lending sooner than later. The Fed already has said it is near to doing so, but in a single day of heavily downward trading, there were calls for the Fed to make an emergency decision to drop basic rates and save us from recession-like conditions.
In that regard, this marketplace drop was an expensive lobbying protest to the Fed, which, despite Trump’s braggadocio, is a group independent of the White House that sets borrowing rates and controls currency. By comparison, Harris kept quiet for the day about the markets.
Of course, there are other answers that the same market-driven people ignore, like dropping consumer prices or, God forbid, holding off on trying to collect yet more profit in an economically fragile time. But like politicians, the lure of immediate advantage is too great to ignore — whether for money or perceived election one-upmanship.
As we know, what fuels the trading are computer codes entered to automatically start trading when downtrading hits designated levels. In effect, what we were seeing was an auto-generated machine response to level-setting based on profit and emotion.
The U.S. Role
What also has not changed is the economic power of the United States to affect global prices and goods production. The strength of the U.S. dollar against other currencies, the U.S. buying power, and our relative stability are central beyond our borders.
Because of international interdependencies, any sign of economic weakness in the United States is going to boomerang around the world, in a self-referential cycle of market response that finally can affect investments that you and I hold. It’s another reason why the rising interest in American isolationism makes little sense politically or economically.
Catherine Rampell, financial columnist for The Washington Post, noted, “ We’re probably not in recession yet. But we could well talk ourselves into one.” She acknowledges that there are strains in the U.S. economy, but not enough to justify the fear that was reflected in this week’s market gymnastics.
She concludes that “Even if the recent data don’t yet doom us to a downturn, enough doom-mongering could. I wouldn’t say the only thing to fear is fear itself. But right now, fear should be among our biggestfears.”
Amen.
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