Worst week for stocks since October 2008. That statement of fact about last week’s market evokes feelings of sheer terror for investors everywhere. US stocks, as measured by the S&P 500, were down 6.5% last week but the real carnage was in emerging markets where double digit losses were more the norm than the exception. Another parallel to the 2008 crash was the downdraft in commodity prices and the rise in Treasury prices. The 10 year Treasury note is now yielding a miserly 1.8%, less than the 2.04% seen at the depths of the 2008 carnage. When people are willing to lend our profligate politicians their hard earned savings for 10 years at less than the rate of inflation – in other words, at a loss in real terms – fear has overwhelmed not only greed but common sense as well.
No one knows the future and maybe the fear apparent in markets will prove justified in the coming months, but as of now, the economic data does not support the thesis. From January to October 2008, the US economy lost roughly 3 million jobs; this year the economy has added 800,000 jobs. In 2008, Industrial production dropped 8% from January to October; this year it is up 1.3%. In 2008, the ISM manufacturing index dropped from 51 to 39; as of last month the index was still above the 50 level that indicates expansion. In 2008, jobless claims had risen from 350k to 480k; this year they’ve barely budged from the 420k level. None of this is meant to imply the US economy is performing as well as anyone wishes or as well as we believe it could, but the market action of the last month would not appear to be based on a rational appraisal of the facts about the US economy.
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