A little over 3 weeks ago I opined that the the big October decline in US equity prices still looked like a panic attack. Shortly thereafter, equity prices climbed over 6%, but have once again returned to their late-October lows. I haven’t made further comments because I didn’t see that anything had changed. I’ll comment now, but it still looks like a panic attack. Key economic and financial fundamentals remain healthy, but fear still dominates the landscape. One new development is the very recent 24% plunge in AAPL, driven by fears that demand for new iPhones is much weaker than previously thought. This has led many observers to theorize that global demand in general may be flagging, increasing the risk of a global recession that might spread to the US. To be sure, equity markets in Europe and Japan have dropped around 10% since late-October, but Chinese equities, surprisingly, have actually picked up a bit of late. It’s not an easy diagnosis, but a global or even a US-only recession is far from an inevitable conclusion.
What follows is a recap of the same charts I featured October 29th, plus a few extras:
As Chart #1 shows, market selloffs are typically accompanied by a rise in the market’s fear and uncertainty. (The ratio I use to capture that is the Vix index divided by the 10-yr Treasury yield. The former is a direct measure of fear and also a measure of how expensive options are, while the latter is a proxy for the market’s confidence in the outlook for the economy; higher yields typically reflect more confidence, while lower yields reflect uncertainty about the future.) It’s worth noting that the “worry” level these days is significantly less than it has been at other times in the past several years, even though
