March 5, 2021

Economix Blog: Riots, Good Credit and Stocks



Notions on high and low finance.

After a week of wild swings, stock markets ended with relatively mild moves for the week, proving there was no need to come home from vacation just because there was a little volatility.

Here are the weekly changes for leading indexes in the United States and the largest countries in Europe and Asia, ranked by price change in local currencies:

1. Britain, FTSE 100: +1.4%
2. Spain, IBEX: -0.3%
3. Italy, FTSE/MIB: -0.8%
4. China, CSI 300: -0.8%
5. United States, S.P. 500: -1.7%
6. France, CAC: -2.0%
7. India, Sensex: -2.7%
8. Japan, Nikkei 225: -3.6%
9. Germany, DAX: -3.8%

Permit me a few observations:

1. The only stock market that rose was the one in the country shaken by riots. Could investors be encouraged by the fact there will now be more investment (in rebuilding stores) and more spending (to restock looted inventories)?

2. The worst performer was the country whose credit has been above reproach. Could bad credit be an advantage? Maybe in this era having a good balance sheet simply adds to the risks that a country will be asked to bail out somebody else. By that logic, the United States should be grateful to Standard Poor’s for the downgrade.

3. Worries about impending disaster in recent weeks have focused on Europe and the United States, while ignoring Asia. But Asian markets as a group underperformed. Could this be a signal that the real problems lie where we are not looking? Or could it indicate that having problems is a good thing in the view of investors? Note that stocks in Spain and Italy did better than those in France and Germany.

If much of the above strikes you as ridiculous, keep that in mind the next time you read an article that confidently uses the newest economic or political developments to explain the newest market moves. If there is one thing I have learned in nearly 30 years of trying to analyze markets, it is that the answers are rarely neat and simple, and that sometimes correlations prove absolutely nothing.

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