What 2018 Stock Market Roller Coaster Means Here Volatility Belies Data from Most Other Economic Indicators

By Moore, Daniel | Pittsburgh Post-Gazette (Pittsburgh, PA), December 30, 2018 | Go to article overview

What 2018 Stock Market Roller Coaster Means Here Volatility Belies Data from Most Other Economic Indicators


Moore, Daniel, Pittsburgh Post-Gazette (Pittsburgh, PA)


What on earth is going on in the U.S. stock market? And how does that tie in - if at all - to Pittsburgh's businesses, workers and consumers?

That these questions don't have solid answers is enough of an answer itself.

On the ground, broad economic measures seem to support the average Pittsburgher: The unemployment rate is at historic lows, wages are increasing, home prices are rising, consumer spending is climbing, gasoline prices are falling.

Yet the stock market seemingly has ignored that most of us feel, well, just fine.

The volatility of stock prices this December is of historic proportion.

Take the past three trading days: The Dow Jones Industrial Average index was up 260 points, or 1 percent, on Thursday; that's one day after rising more than 1,000 points, the biggest single-day point gain in history; one trading day after the worst Christmas Eve losses in history.

While daily movements of the market were once measured by maybe a dozen points and fractions of a percent, whole percentage points have been gained and wiped away in six-and-a-half hour trading sessions.

While the commotion from Wall Street grabs headlines, economists are trying to temper the alarm. Investors aren't primarily focused on the issues directly facing businesses and consumers today, but rather the prospects of future profitability of large public U.S. corporations.

"There is no actual hard data that supports the stock market volatility," said Kurt Rankin, an economist with The PNC Financial Services Group.

"Given how disconnected the stock market is from the economic reality," Mr. Rankin said, "the stock market does not offer any valid prediction of where the U.S. economy is headed."

A December national economic outlook released by Downtown-based PNC found little cause for concern. U.S. wages were growing at the fastest rate in a decade, holiday shopping was expected to reach levels last seen in 2007, and consumer sentiment was close to a 2000 peak. They summed up the situation: "The outlook is bright."

Still, there could be cause for concern about where the economy is headed after a record run.

In the decade since the 2008 Great Recession, the stock market has enjoyed the longest period of gains in history. It achieved those record heights on Aug 22, at a time that major global economies seemed to have fully recovered from the recession and were growing in unison.

The U.S. gross domestic product had notched 4.2 percent annual growth from April to June, a roaring figure for the measure that captures all goods and services in the country.

However, in the second half of 2018, things didn't look so rosy.

Global growth has slowed. International trade hostilities ramped up between the United States and China, Europe, Canada and Mexico - crimping companies that rely on global buyers and suppliers. China, the world's second-largest economy, has struggled under the weight of U.S. tariffs on Chinese goods.

PNC projects a 25 percent likelihood of a recession in 2019, Mr. Rankin said. If not in 2019, then there is a 40 percent chance of it hitting by the end of 2020.

If there is one thing everyone can agree that stock market investors hate: future uncertainty for corporate profits.

That's why the stock market has been antithetical to the idea of interest rate hikes this year by the Federal Reserve, making it more expensive for companies to borrow money. After the Fed projected raising rates at least two times in 2019, President Donald Trump reportedly floated the idea of firing Fed Chairman Jerome Powell, which would be an unprecedented move that could roil markets. …

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