Fear Is Driving the Financial Markets

We are taught major market moves are driven by two main factors ... fear and greed ... and right now we are seeing fear in spades.  

Some of the fear we are seeing is quite logical based on the headline pertaining to yesterday's drop as "stocks have biggest loss in history" ... for this certainly gets the attention of readers much more than if they framed it as "stocks have 125th biggest drop ever" ... which is what it amounted to, according to one twitter comment I saw, based on a percentage basis.  But it is the rapidity of the drop that has many shaking their heads ... as, according to Deutsche Bank Research, this was the fastest 10% correction (from the peak) for the S&P on record ... and Daily Shot tells us that a "Fear & Greed Index" put out by CNN is now "pushing toward panic mode."

You really can't blame investors (and non-investors) to be worried.  In economics course, we are taught that almost everything is a function of supply and demand ... and it is feared the coronavirus will have an effect on both.  After all, supply ... especially in goods where components are sourced from overseas and in emergency goods (masks, etc.) ... could be disrupted ... and demand ... especially related to travel ... might face severe headwinds.

There is also great discussion surrounding action by the Fed.  Would a cut in rates help ... or cause further panic?   

Mike Darda was on Bloomberg Radio this morning providing the view that the Fed should act now ... as the longer they wait, the less effective they will be ... yet National Economic Council Director Larry Kudlow earlier this week gave the view that the Fed will probably hold its present course since he did not feel this would become an "economic tragedy."   It should be noted, though, that his comment was made a few thousand Dow points ago.

As I write this, the Dow is down around 900 points ... though it will probably change greatly from this level by the time this hits your mailbox.  This is what happens during an emotion-led market.

Probably the most interesting story (to point out emotion) comes from the NY Post that a number of Americans (38% of beer drinkers) are avoiding Corona beer because of the virus.  What??? Such are the times we live in.

We look forward to the respite of the weekend after this troubling week on Wall Street.

The carnage that we are seeing right now in the markets is due to fear. Many of us have been through this before ... but for those who have not (millennials) ... this might help (CNBC)

One concern about fear is that investors could jump into their foxholes ... slowing purchases and travel ... leading to a severe economic slowdown (Axios)

... and a reduction in travel might not be voluntary ... as some wonder if governments ... in the attempt to contain the virus ... will shut down air travel (CNBC)

While many are spending money on masks ... one bit of advice is to wash hands thoroughly ... and there is a science to how to do this properly (CNN)

Are people getting a little illogical about the virus? While precautions are important, some are avoiding Corona beer ... which is outright silly (NYPost)

Do you want to sell more wine in your restaurant? Serve it in larger glasses, according to study. I guess this means if you want your guests to drink less, use smaller ones (DailyMail)

And one more study shows my many have a problem with math. Quite simply (or not so simply), we are teaching it wrong (USAToday)