One of the reasons for the current upswing in market volatility is
uncertainty about the Federal Reserve’s timeline for raising short-term
interest rates. We would argue that a bigger concern is widening credit
spreads in the corporate bond market, which suggest more economic
trouble may lie ahead.
A Federal Reserve decision to not raise interest rates is generally
greeted as good news by U.S. equity investors. Not this time around,
however. Since last Thursday, when the Fed voted to stand pat on rates,
the Standard & Poor’s 500 is off nearly 4%.
The Federal Reserve met market expectations at its September meeting by
holding interest rates near zero. The rationale of its 9-1 vote:
elevated concern about global growth that in recent weeks has pushed
down inflation and injected greater volatility into asset markets.
Headlines out of Europe lately have been dominated by the challenges the
continent faces in handling the huge inflow of desperate migrants from
Africa and the Middle East. The good economic news that’s coming out of
the region is understandably getting less attention.
You didn’t really think the market’s roller-coaster ride was over
already, did you? This week’s headlines could have been recycled from
last week. We’ve seen another bout of volatility triggered by more
worries about weakness in China.