It is clear that something is happening. Central Banks make headlines way too much. No one, not on Main Street or Wall Street, has any idea what the hell the Fed even does everyday. How is it that Reserve Board meetings and Fed policy statements or testimony to Congress are so heavily watched? And why is it that whatever comes out from them has such a strong impact on markets?
My point is, macro economics shouldn't matter as much as they do. Of course to have an understanding of this stuff will make financial models much much more accurate. But, realistically this stuff isn't going to effect a company's financial or business profiles all that much.
With the changes happening, there seems to instead be a shift going on that no one can control. Everyone wants to know what the next 20 years have in store as we gather from a financial crisis that rocked the world in 2008-09. Neel Kashkari of the Minneapolis Fed along with Elizabeth Warren are two significant voices coming at the banks, for government policies and a shift in focus towards consumption.
Yet, there has been a greater push by the banks to retain and train employees, mainly to rival tech and other highly sought after industry jobs. This will get harder and this uncertainty trickles to other parts of the economy.
Do we get through this smoothly or does someone like Bernie make the world 'a better place?'
These meetings have been covered more thoroughly because the Fed has stated they want to raise rates. Now after almost a decade of incredibly low interest rates this is kind of a big deal. Talks around QE (either increasing or decreasing) are also important and should be monitored closely for fairly obvious reasons.
Macro factors aren't going to affect (note: not effect) a company's financials? So employment and discretionary income won't influence a company's earnings? Commodity prices (esp oil) and interest rates won't hit a company's bottom line?
Those changes are exaggerated in the short term. The reason that there's volatility, I think, is because none of these folks have a strong understanding of the long-term real causes of them.
(Thanks for also pointing out my mistake)
here's the reason: macro stuff is incessant, micro stuff is occasional.
you're looking at this through the lens of the media, where there are always talking heads pushing their agenda, be it a bill in the case of warren or gowdy or sanders, or policy like kashkari, or a point of view like any number of them, and the media needs to fill airtime regardless of whether or not anything substantial is taking place. micro stuff that will really move the needle (improving sales, innovation moving forward, etc) takes a while to digest and appear.
in the short run, the noise will rule, but over full market cycles (years, not days weeks or months), fundamentals matter. the reason that these statements have effects on the market is because people are sheep and are irrational. sure, an increase in rates might increase a company's cost of capital, but is that a reason to bid its stock down 10%? probably not.
I'm guessing you're still in college/high school, basically, the world doesn't work the way your theoretical textbooks describe it all the time, you're attempting to analyze something (financial markets) in a scientific way when there's an extremely large human element messing it all up.
hope this helps
All of the things you point out add a lot of color and flavor to the post. I am looking at the irrational behavior in the markets because I know that a 25 bp move by the Fed doesn't do a whole lot to the cost of capital, or at least shouldn't.
here's what goes through people's minds: "oh no, the Fed is raising rates, which means it will be more expensive to borrow, inflation will persist, which means real growth will slow, which means a recession, WE SHOULD SELL!!!"
or the other extreme: "the fed is raising rates, the economy must be improving, BUY BUY BUY!"
eventually, however...
"a lot of this selling has been in the face of stable profit margins and rising earnings, multiples are nearly 1sd below the mean, maybe we should buy..."
I'm waiting for the "eventually" to play out, I think we've got more pain before that happens though.
Isn't this beyond the markets, though? For example China wants to move its economy from investment to consumption at the insistence of some economists. Growth is slowing because investment economics got exposed during the bust of the credit expansion (I.e. Greece vs Germany and Chinese high savings rates vs US economic woes and stagnant wage growth). This noise won't be over soon...
Laudantium autem aut doloremque velit magni quos quidem. Suscipit vero maxime vitae voluptatum. Laborum rerum sed voluptatibus omnis tempora. Quia perferendis tenetur harum.
Modi expedita libero quos voluptatem ab quasi illum. Numquam asperiores dolores ut et odit. Et illo et ipsa inventore unde incidunt expedita. Sint aut nulla non accusantium. Eos fugiat eligendi inventore et veniam. Hic incidunt sequi magnam libero quidem aperiam excepturi ut.
Expedita quae minus quibusdam consequuntur occaecati aliquid. Distinctio ipsam consequatur odit et in. Eum eos officia sit harum. Itaque quibusdam aut blanditiis neque. Ut magni non rerum voluptas et.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...