Good morning.
Remember last August? It was a year ago yesterday that the Chinese central bank engineered a surprise 2% devaluation of the yuan, ultimately leading to a late summer’s market panic. This columnist, along with others, suggested it could signal the beginning of a global economic slump.
But yesterday, all three U.S. market indices – the S&P, the Dow, and the Nasdaq – hit record highs – the first such trifecta since 1999. Even ‘Brexit’ woes have been forgotten, and The Wall Street Journal this morning is speculating about a market “melt-up.”
So should we conclude that all is now well with the world?
That’s one possibility. The other is that a continuing flood of easy cash – “Pokemoney,” as one investor is calling it – has distorted market signals beyond all recognition. Investors in desperate search of yield are responding like hyperactive dogs to every central bank whistle. And any relation that resulting market swings have to the underlying economy has become ever harder to discern.
But for those who want to take the optimistic view, the Journal has provided four reasons that economists think things might go better than expected in the coming months:
- Consumers start to spend more: With unemployment dropping, and wages slowly rising, consumers are in good shape to spend this fall.
- Business investment revives: The glut in oil was a big reason for investment to fall off, but that glut is now easing.
- Record-low interest rates start to boost housing.
- Political outcomes aren’t horrible: Both presidential campaigns are finally starting to pay attention to policies that boost the economy.
Perhaps some good can come of this circus after all?