The Stock Market's Emotional Downward Dive.

The Stock Market's Emotional Downward Dive.

And then there’s the stock market. As if things weren’t bad enough, the U.S.’s’ stock market plunged today after a slew of bad news. I was at a cookout last Saturday and I asked my father, who is about to be in his 60’s, what he thought about his 401K. A whole lotta O’s, not so many 4’s or 1’s and a lot less K’s than there were a few years ago. He furrowed his brow and talked about a new money manager and diversification. I’m sure he was not happy about what he saw today’s market do. It may mean that he has to work an extra year or two. You never know.

Here’s an example of how emotion affects the market as much as anything else. It is caused by some of the financial things that are changing. The situation is that people got scared of what happened in China.

“It’s a continuation of what we’ve been seeing for months. There’s re-evaluation of global growth prospects going on. Will 2011 turn out weaker than 2010?” said Gary Baker, equity strategist at Banc of America Securities-Merrill Lynch.

Wow. Weaker?  Well, here’s what happened. The growth in China got lowered to around .3% from its last 1.7% estimate. Not good. They sold their stocks, which got people in Europe selling their stocks, which to the U.S. markets selling their stocks, which dropped the Dow under 10,000. Again. These are the kind of numbers I understand. Everyone selling their stock means that it will all be worse, everything will go down. Not quite as much as BP stock, which is shooting south faster than birds in the Minnesota winter, but in a way that brings everything down with it. The numbers I don’t understand are bad as well. The Conference Board’s consumer confidence index fell to 52.9, which is a 10 point decline. I don’t know what that means, but if confidence is falling (in consumers or from consumers? I wonder.), then I know things are going poorly.

What does all of this mean? “I think it all goes back to this deflation trend that seems to be taking place. The Fed is on hold and you are starting to see investors panic on interest rates, thinking they don’t have enough bonds in their portfolios.” That’s what Tom di Galoma, U.S. head of fixed-income rates trading at Guggenheim Partners thinks. I don’t really know what all of that means either, but if people want more bonds I know that means they are staying away from stocks. Staying away from Hedge Funds. Staying away from risk. And that means growth goes slower, and that means that everything is going to make less money and go down in value when we need it to go up. But maybe we are just used to inflated growth rates- an economy that isn’t and wasn’t sustainable. Things aren’t tanking right now, they are maintaining and sustaining. That isn’t a bad thing- it isn’t what we are used to, either- but it may be what we get used to now.

Photo Credit: DavidDMuir