No one ever really knows why financial markets do whatever they do. (Though it’s possible to have some pretty high-conviction guesses.) But this week, observers really had no idea what was going on.
With US economic growth looking better than first thought, signs of ongoing resilience in the labor markets, interest rates that remain incredibly low, American stock markets suffered a bit of a stumble. The S&P had its worst week of the last eight, for example.
Why? Well, there were some idiosyncratic events earlier this week that affected some market giants that have larger-than-average impacts on market indexes. For instance, somewhat overblown reports that Apple’s new iPhone can be bent hammered shares yesterday. (Though much of the losses were made back today.) Also ExxonMobil’s shares were down 1.7% on the week, amid ongoing turmoil related to its relationships to Russia’s arctic oil fields.
But in the background are doubts about exactly how the financial markets will handle the end of the Federal Reserve bond buying programs next month. Since they were put in place in the wake of the US financial crisis, those programs have been credited—or blamed—for inflating the prices of assets like equities. So it’s possible investors are viewing their end with some trepidation. And we’re not just talking about American investors. A lesson of last year’s “taper tantrum” was that what the Fed does has a tendency to spread far and wide, with serious implication for emerging markets.