The markets today, Wednesday, and viewed several hours before the opening bells in North America appear poised to prove once again that volatility has become the new normal, a reality that has to be factored into investment decision-making for now and the foreseeable future.
At time of writing, most major North American indicators are firmly in the green while some European indicators and -- surprisingly after yesterday’s events --- safe havens such as gold are in the red.
Under normal circumstances these indicators can change during the runup to the opening bell and at any time afterwards.
This follows yesterday’s brutal plunge after United States President Donald Trump’s abrupt decision to end stimulus talks until after the election. In turn, that followed Federal Reserve Chairman Jerome Powell’s warning that the fragile recovery needed more help.
Moments after Trump’s announcement, the markets slid in a gut-wrenching drop and investors could be forgiven for assuming that today would bring more of the same. And given the volatility of recent days, it is reasonable to believe that another plunge can occur at any time, given developments in Washington.
The markets are so volatile that a swing back after yesterday’s plunge would have taken place over time anyway but the dramatic green in this morning’s indicators at least partially reflects reaction to tweets Trump sent out last evening in which he appeared to soften his stance.
He urged immediate approval of loans for small businesses, aid to airlines to avoid mass furloughs of employees and individual stimulus payments. “I am ready to sign right now,” he said, according to a Reuters review of his statements.
Looking beyond today’s confusion, and notwithstanding areas that are not clear, several hard questions need clarity for the sake of investors, the markets, individuals looking for employment and individuals hoping to hang on to the employment that they have: the United States economy is at an inflection point at which economic stability – and therefore market stability – urgently requires resolution of a number of factors. Amongst them, the only one for which some clarification appears imminent is the federal election in November. It is reasonable to expect that If President Trump succeeds in retaining his White House address, he and the Republicans will follow a pro-business agenda. It is also reasonable to expect that if challenger and former Vice President Joe Biden moves into the White House, he and the Democrats will favor increased regulation and a stronger focus on consumer and environmental rights.
After the election, the ongoing U.S.-China dispute urgently needs resolution so that companies with China sales targets and investors with China holdings have a clearer picture than at present.
Also, after the election both investors and the companies involved need clarification of whether and to what extent the government plans to increase regulation of the large tech companies such as Facebook and Amazon.
Let’s take it as a given for the time being that volatility is in fact, the new normal but one central debate looms behind all of these questions, though it is rarely articulated: to what extent do we want the government involved in pushing and pulling the levers of the economy? Current crises have made this question more urgent than ever previously.