By George Glover
So much for August being a quiet month for markets. Monday's dramatic selloff kick-started a week of chaos -- but ahead of inflation data next week, investors who keep calm are likely to be rewarded.
Stocks swung wildly after the Bank of Japan's hawkish shift on interest rates unraveled the carry trade, in which people would borrow the yen on the cheap and then use it to invest in higher-yielding assets.
Benchmark U.S. indexes seesawed, Tokyo's Nikkei 225 had its worst day in nearly 40 years, and Wall Street's "fear gauge" -- the CBOE Volatility Index -- spiked to its highest level since the pandemic.
Thankfully, the selloff didn't spiral into a full-blown crash. The benchmark S&P 500 had its best day since November 2022 on Thursday, meaning its pared back most of its Monday losses. That's a reminder not to make any knee-jerk moves -- if you started selling when stocks tumbled, you'd probably have missed out on the rebound.
Wednesday's inflation data could pose a fresh challenge for the Federal Reserve. If prices rose at a faster rate than investors were expecting in July, it'll be tougher for the central bank to justify slashing interest rates by 50 basis points in September -- giving investors another reason to fret about a recession.
That's not the only source of concern. The outlook for the labor market looks clear as mud right now, as while the July nonfarm payroll report suggested a slowdown, weekly jobless claims data gave economists reason to be a bit more cheerful. And Super Micro Computer's earnings Tuesday, which showed the server maker's profit margins have tumbled, have fueled worries that the AI investing craze might be about to fizzle out.
That's without mentioning the elephant in the room: November's presidential election.
There's little to separate Kamala Harris and Donald Trump in the polls or at the bookies right now, and that's a massive driver of uncertainty for the market. It's difficult for investors to justify buying the dip in stocks while everything is still up in the air.
"A week is a long time in politics, let alone in markets," ADM Investor Services' chief economist Marc Ostwald tells Barron's. "Things can be turned on their head very quickly, and if you go for an all red or all black strategy, roulette style, that can bite you heavily."
So while markets are febrile, now isn't the time to start making knee-jerk moves.
Write to George Glover at george.glover@dowjones.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
August 09, 2024 07:15 ET (11:15 GMT)
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