The new year has brought a marked change in the stock market’s behavior, with deep dives and strong upturns, occasionally in the same day. The differences between those who believe that corporate earnings reports bode well for a slightly up market going forward and those who see a world economy struggling to keep its footing couldn’t be greater.
Market benchmarks are down about 8 percent for the year, with the 10-year treasury note at 1.6 percent, significantly below 2 percent. With more money looking for safety, interest rates in turn drop.
As an indication of the degree of nervousness among investors, gold, which has languished for years, is up 18 percent for the year.
The price of oil, as everyone knows, is showing no signs of recovering. Even the largest oil companies are now severely cutting spending and in some cases, their dividend. Their borrowing to fund operations is calling into question the banks they do business with.
Gas could be $1 a gallon if oil drops to $20, some speculate.
China’s expected economic growth rate, half of what it has been in recent years, has decreased the need for world’s commodities. Iron ore and a dozen other commodities are priced at or below production costs.
As economic expectations falter in China, its currency declines in value. That country’s reserves, needed to stabilize the currency, are being depleted. Chinese who have money are sending it overseas where they believe it is more likely to retain its value.
In the United States, farm crop prices are off considerably because of years of record yields. Land prices in the Midwest, which have climbed steadily, are flat to slightly down.
In Germany and Japan, interest rates are negative. Worthwhile loans are few in number, and banks are charging (not much, but nevertheless charging) for the security and liquidity that bank accounts make possible. The climb in high-end art and vintage automobile prices has halted.
European countries’ economies have not been able to shake off the sluggishness that resulted from the mortgage-induced recession of 2008; the fiscal austerity they put in place was unsuccessful. The United States, applying increased spending and making more money available, had the correct reaction.
On the brighter side, consumer spending in the U.S. continues to be strong. Automobile sales set a record last year, with many of the vehicles SUVs and trucks. The plunge in gas prices is receiving much of the credit.
U.S. employment is high, even if wage levels are not what workers want, or used to receive. With the growth in online shopping, Christmas sales were respectable.
Can the U.S. economy, with all its strengths, continue to keep the world afloat as it has since the developed countries emerged from 2008?
Perhaps the best things it has going for it are its stock exchanges. Nowhere else can money be invested with such safety and a likelihood for growth. The year 2008 was certainly troubling, as the largest banks almost pulled one another down with their misguided marketing of unsupportable mortgages, but over time the markets recovered.
The best advice is commonplace: Don’t panic. Stay the course, and let those days when the markets are up or down 2 or 3 percent fade into history.
