Impact of Yesterday's Top Two News Stories: One Already Hit, the Other Might
Two Stories have the potential to impact markets in the future. One already did - partly. The other hasn't, but might. The one surprised no one, although one consequence of it may have surprised some. The other was a bit of a shock, and we'll need to keep a close watch on it's potential consequences.
When the Fed announced it was raising rates, the markets, which began the day in a state of slumber, mostly continued to snore. They also said they were going to trim "some" of the $4.5 trillion of assets they bought up in response to the 2007-2009 crisis. But without much in the way of specifics, it didn't really garner much reaction.
What may have surprised some, though was that upon announcing a rate increase, rates decreased. That's because, while the Fed controls what's called the Fed Funds rate - which can impact short-term interest rates - it doesn't control longer-term rates. And it was those that decreased. Why? Typically, such an increase indicates a lack of conviction about the strength of the economy. So we have on the one hand the Fed arguing that the economy's strong enough to withstand an increase in short-term rates, and on the other the bond market weighing in on the other side of that argument. As for the selling of assets, without specifics as to when and how much, I'd be a skeptic here.
Towards the end of the day, the Dow, which had dipped into negative territory after the announcement, turned up a bit to end the day in positive territory. The S&P and NASDAQ tried to follow suit, but just couldn't manage the challenge.
The other story of the day was, of course, the shooting of Republican Congressman Scalise and four others in DC. Fortunately, it appears the victims will recover. Meanwhile stories about the shooter portray a man who publicly supported Bernie Sanders and vehemently opposed Donald Trump. Further, he apparently felt Trump's victory tainted all Republicans, justifying turning his vehemence into violence.
We should generally avoid spending too much time reading accounts of such events so close to their occurrence. It's not unusual that initial reports lack solid facts and therefore credibility. But if the political angle continues to be played up in coming days, we may need to raise our antennae and pay closer attention. My reasoning here stems from a headline I caught the other day positing the question of whether the country was headed for Civil War. The source was an established political commentator, so I read the article. The argument presented certainly wasn't crazy or even far-fetched. The point here is that the vehemence expressed by the now deceased shooter of the Congressman may be shared by more than a few of our fellow Americans. And so it becomes eminently rational to wonder whether such vehemence will, as it did for this shooter, turn into violence.
The fact is, violent clashes between anti-Trump factions and Trump defenders have been occurring regularly since the recent election. Some have been reported, but the media has since move on. That doesn't mean the clashes have ended. They're just off the radar - for now. The question now is whether the robust vehement opposition to Trump, combined with what may be an equally robust contingent of Trump supporters consists of a kind of tinder box, with the recent shooting serving as the match. Just remember that, in such situations, even this kind of tinder box may smolder for a while before igniting.
I think it's worth paying close attention here. The resulting heat could very likely scorch not only our markets but our personal lives as well.
UPDATE: Apparently Congressman Scalise and another victim are now listed in "critical" condition, not just "serious." It shows again that initial reports lack solid facts and therefore credibility, so paying to close attention to them is generally not worth your time. More importantly, though, is to recall that "critical" means things could go either way; so these folks need our prayers.
When the Fed announced it was raising rates, the markets, which began the day in a state of slumber, mostly continued to snore. They also said they were going to trim "some" of the $4.5 trillion of assets they bought up in response to the 2007-2009 crisis. But without much in the way of specifics, it didn't really garner much reaction.
What may have surprised some, though was that upon announcing a rate increase, rates decreased. That's because, while the Fed controls what's called the Fed Funds rate - which can impact short-term interest rates - it doesn't control longer-term rates. And it was those that decreased. Why? Typically, such an increase indicates a lack of conviction about the strength of the economy. So we have on the one hand the Fed arguing that the economy's strong enough to withstand an increase in short-term rates, and on the other the bond market weighing in on the other side of that argument. As for the selling of assets, without specifics as to when and how much, I'd be a skeptic here.
Towards the end of the day, the Dow, which had dipped into negative territory after the announcement, turned up a bit to end the day in positive territory. The S&P and NASDAQ tried to follow suit, but just couldn't manage the challenge.
The other story of the day was, of course, the shooting of Republican Congressman Scalise and four others in DC. Fortunately, it appears the victims will recover. Meanwhile stories about the shooter portray a man who publicly supported Bernie Sanders and vehemently opposed Donald Trump. Further, he apparently felt Trump's victory tainted all Republicans, justifying turning his vehemence into violence.
We should generally avoid spending too much time reading accounts of such events so close to their occurrence. It's not unusual that initial reports lack solid facts and therefore credibility. But if the political angle continues to be played up in coming days, we may need to raise our antennae and pay closer attention. My reasoning here stems from a headline I caught the other day positing the question of whether the country was headed for Civil War. The source was an established political commentator, so I read the article. The argument presented certainly wasn't crazy or even far-fetched. The point here is that the vehemence expressed by the now deceased shooter of the Congressman may be shared by more than a few of our fellow Americans. And so it becomes eminently rational to wonder whether such vehemence will, as it did for this shooter, turn into violence.
The fact is, violent clashes between anti-Trump factions and Trump defenders have been occurring regularly since the recent election. Some have been reported, but the media has since move on. That doesn't mean the clashes have ended. They're just off the radar - for now. The question now is whether the robust vehement opposition to Trump, combined with what may be an equally robust contingent of Trump supporters consists of a kind of tinder box, with the recent shooting serving as the match. Just remember that, in such situations, even this kind of tinder box may smolder for a while before igniting.
I think it's worth paying close attention here. The resulting heat could very likely scorch not only our markets but our personal lives as well.
UPDATE: Apparently Congressman Scalise and another victim are now listed in "critical" condition, not just "serious." It shows again that initial reports lack solid facts and therefore credibility, so paying to close attention to them is generally not worth your time. More importantly, though, is to recall that "critical" means things could go either way; so these folks need our prayers.
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