Is There Too Much Optimism on Wall Street?
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What is the main topic discussed in this episode?
With your Money Briefing, I'm J.R. Whelan at The Wall Street Journal in New York.
How did the market move from a sharp Q4 decline to a strong Q1 rally?
After a sharp decline on Wall Street in the fourth quarter, we've seen a sharp uptick so far this year. But does that sharp uptick represent too much optimism that could turn us around for another downturn?
Could current market gains reflect too much optimism that risks a pullback?
We'll have details in a moment. First, these money and market stories you should know. Low inflation and rising wages are filling up the pockets of American workers.
What recent inflation and wage data are influencing investor sentiment?
The Labor Department says the Consumer Price Index, which gauges what Americans pay for everything from used cars to hummus, rose to seasonally adjusted 0.2 percent in February from the prior month. Rising gasoline prices, housing costs, and grocery bills all contributed to the month-over-month increase. All told, prices rose 1.5 percent in February from a year earlier, but that was the slowest pace since September of 2016. And workers' hourly earnings increased 1.9 percent from a year earlier in February. Meanwhile, production and non-supervisory employees, that's a category that includes blue-collar workers, saw their real average hourly wages rise even more by 2.2 percent over the year to February.
That was the strongest gain for both measures since late 2015. And the White House is considering a measure that would require colleges and universities to take a financial stake in their students' ability to repay government loans. In other words, be responsible for whatever money a student doesn't repay. That's an effort that could squeeze loan availability of students and reduce defaults. The journal's Michelle Hackman reports a draft of the order isn't final, and the specifics of exactly how a skin-in-the-game provision would work haven't been laid out. It also isn't clear whether the White House will back an administration proposal or urge Congress to take one up. Proponents argue that if schools were made responsible to partially or fully pay back that money, they would likely offer fewer low-quality programs or induce fewer students to attend who couldn't ultimately pay.
How might a White House 'skin-in-the-game' proposal affect student loan markets?
Colleges and universities argue that should such a measure be implemented, it would harm schools that take on disproportionate numbers of low-income students, like historically black colleges and universities and for-profit schools. The market downturn in the fourth quarter of last year was fast, and the recovery that took over Wall Street right at the start of the year was fast as well. Should that give us reason to think that the market could snap back into a downturn just as quickly? Let's get some answers from Wall Street Journal markets reporter James McIntosh. So, James, there were several layers of worries that were weighing on stocks that have lifted for the most part, not the least of which was concern about the Federal Reserve.
You can identify three big factors that were behind the sell-off that really started in October. The first is the Fed.
Which three factors did James Mackintosh say drove the October sell-off and the subsequent rally?
People went from not worrying at all about the Fed to suddenly being very, very concerned about the Fed. In part because it became obvious that the global economy was slowing. In part because sentiment shifted. People stopped feeling so positive and they looked for a reason to worry and the Fed gave them a good reason to worry. and in part because they were also getting increasingly concerned about the Chinese trade dispute and the danger that it would turn into a full-blown trade war. All three of those things have lifted to some extent. So I think we can say the Fed, from the start of this year, acted as the trigger for why there was the rally when the Fed effectively retreated from the idea of hiking rates this year.
The Chinese trade dispute has been a slightly slower burn, but there's been a whole series of positive news and people are now assuming there will almost certainly be a deal or possibly an extension, but the tariffs probably won't get raised to the 25% level that was being discussed. On the global economy, the news has not been so good. People were panicking that it was going to be even worse.
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Chapters
7 chapters
1
What is the main topic discussed in this episode?
0:05–0:09
2
How did the market move from a sharp Q4 decline to a strong Q1 rally?
0:09–0:21
3
Could current market gains reflect too much optimism that risks a pullback?
0:21–0:29
4
What recent inflation and wage data are influencing investor sentiment?
0:29–2:03
5
How might a White House 'skin-in-the-game' proposal affect student loan markets?
2:03–2:58
6
Which three factors did James Mackintosh say drove the October sell-off and the subsequent rally?
2:58–4:26
7
Are investors moderately optimistic or dangerously exuberant right now, and what could change that?
4:26–7:21
Speakers
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