Apprehension Roils Us Markets

Apprehension Roils Us Markets

We saw some edginess start to creep into the stock market in yesterday’s trading session and as we draw closer to the start of the reporting season the apprehension has only become worse.

This has speeded up the pace of retreat in stock prices today and pushied the Dow Jones Industrial Average into triple-digit losses on the day. By mid-afternoon in New York, the blue chip stock indices were all suffering substantial declines, with the DJIA down 0.61% or 103 points and the S&P 500 off by 0.65% at 1964.9. The technology sector was hit hard, with the NASDAQ 100 sliding more than 1% and smaller cap companies were also battered, sending the Russell 2000 more than 1% lower for a second successive session.

With the stock market having enjoyed such a bullish run recently, in the face of potentially adverse events, such as conflicts in Iraq and Ukraine, and a surprisingly large contraction in GDP in the first quarter, the question has been begging for some time over how much longer prices could keep rising. Now there is concern over whether this may be the start of a substantial correction, though we are still in the realms of what might just be profit-taking.

The Labor Department released the results of its Job Openings and Labor Turnover Survey (JOLTS) for May today, showing a healthy increase in job openings, which rose to 4.635 million from April’s upwardly-revised 4.464 million. The rate of people quitting their jobs, which can be viewed as a gauge of people’s readiness to leave jobs and consequently as an indication of the health of the jobs market, held steady at 1.8%, while involuntary separations, such as layoffs and discharges, was also stable, coming in at 1.1%.

Along with last week’s buoyant payrolls data, this is yet another piece of evidence of improvement in the labor market. Fed Chief Janet Yellen is reported to closely follow the JOLTS data, and the picture it pains of steady recovery may help to convince her that the slack in the labor market is starting to be taken up.

Narayana Kocherlakota, the head of the Minneapolis Fed, said in speech today that he is still concerned over the slack in the jobs market, though, and warned that the recent drop in the unemployment rate ‘could well overstate the degree of improvement.’

Mr Kocherlakota, formerly an inflation hawk who has more recently adopted an extremely dovish stance, also played down the significance of rises in measures of inflation, saying that ‘many large fluctuations in inflation end up being purely transitory’ and instead said that ‘I currently see the probability of inflation's averaging more than 2% over the next four years as being considerably lower than the probability of inflation's averaging less than 2% over the next four years.’

The Fed releases minutes from its most recent FOMC meeting on Wednesday afternoon.

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