Bailout

Those panicky markets

By Felix Salmon

Alphaville has most of the datapoints you need this morning. There’s the European bourses, which started off low and basically haven’t moved all day; the FTSE 100 is now pretty definitively below 5,000 for the first time since September. There’s the flight-to-Germany trade: 10-year Bunds are now below 2.86%. There’s Libor, which is looking ugly and getting worse. There’s the euro, of course, which is now at 1.22. And, in case you want policymaker panic rather than market panic, there’s the proposed German short-selling ban.

All of which makes the downward lurch in US stock prices seem pretty reasonable, in context. Stocks are naturally volatile things, and when you decisively break a barrier like Dow 10,000, there’s no predicting what will happen next. But you might want to have another look at the spreadsheet that Frank Tantillo and I put together comparing the Dow at the bottom of the flash crash to the Dow now: not only is the average at pretty much exactly the same place, but nearly all of the component stocks are within a point or two of their flash-crash lows. (IBM, 3M, and P&G are the outperformers; Caterpillar and Microsoft are the underperformers.)

The S&P 500 is down 2.8% today: another day like this, and it’ll break back down into triple digits. Just remember, though, that it was not all that long ago the S&P was trading below 700. As ever, if you’re invested in stocks, make sure you have a strong stomach. And expect a lot more volatility going forwards.

Full post as published by Macroprudential on May 25, 2010 (boomark / email).