TL;DR: Good economic data means less stimulus, less stimulus means that markets propped up on cheap credit and other stimulus measures shit themselves. Conversely, bad data means air will continue to be pumped into the markets.
February 2018, 9 years after the Fed started QE to counteract the financial crisis: Dow Jones suffers worst day in over six years as global stock markets plunge.
Why? The economy was doing TOO well:
The plunge, initially triggered by fears that strong US employment numbers would lead to wage demands and rising inflation, represents the first two-day drop of 1,000 points or greater for the Dow since August 2015.
According to projections released in December, officials expect three rate hikes in 2018 – so long as market conditions remain broadly as they are – but some economists believe the central bank could add another increase at its final meeting of the year.
Hussein Sayed, the chief market strategist at currency dealer FXTM, said investors were nervous about the prospect of higher interest rates. “The era of cheap money is ending, and for markets who got addicted to it, it’s undoubtedly bad news,” he said.
Greg McBride, chief financial analyst at Bankrate, said: “Markets have been addicted to low interest rates and global central banks pumping money into the financial system. As economies around the world are improving, this means higher interest rates and less stimulus from central banks. That’s why investors are throwing a hissy-fit. Not because anything is wrong.”
Even the UK got in on the action:
The FTSE’s fall was limited by worse than expected economic data that sent the pound down to $1.40 from $1.42 overnight.
Think about that. Weak economic data is why UK markets would have fallen more had the economic data been better.
What’s the mean for us today? We have at least a year of horrible economic data ahead of us. Ya boy JPOW has a few trillion more dollars he plans to lend and has promised that interest rates will be this low for years.
SPY 330c 01/15.
Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence.
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