Stocks, Commodities Moving in Lockstep: A Red Flag
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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. Stocks and commodities have been moving in lockstep as of late. We'll tell you in a moment why that could mean more dark clouds ahead for investors. First, these money and market stories you should know. A study by the group Child Care Aware of America says that parents in the U.S.
What recent household cost trends should investors know about (childcare and budgets)?
spent an average of $9,000 to $9,600 annually on for one child's daycare last year. That's up about 7.5 percent from the previous year. And the pressure on household budgets is getting tighter. A married couple making the national median income of about $87,750 will have to devote 10.6 percent of their money for childcare, up from 10.2 percent the year before. And for single parents, childcare costs can eat up 37 percent of household income. The U.S. Department of Health and Human Services has recommended child care costs should account for no more than 7% of family income. And like many of us, you probably didn't win much money in the recent Mega Millions or Powerball lottery drawings, but what if you won $180 million in the lottery?
The Wall Street Journal Real Estate Bureau profiles California resident Rick Knudson, who did just that and bought a $5.5 million, 16,000-square-foot luxury mountain home on 50 acres and then spent millions more on an adjacent 155-acre Buffalo ranch. The house has an elevator, a gym, a wine cellar, a one-bedroom guest apartment and a wraparound deck. On the grounds, there are two barns, a caretaker's home, a stocked fishing pond, and a five-and-a-half-mile hiking and driving trail. In all, he spent more than $11 million on property and buildings. Now he's listing the property for $22 million.
How did a Mega Millions winner’s real-estate spending illustrate wealth choices?
See his story on WSJ.com.
October's market volatility, which has included several deep sell-offs, is revealing a very troubling signal for anyone who is waiting for Wall Street's turbulence to subside. In Wall Street Journal Markets reporter Amrith Ramkamar is here with us to shed some light. So Amrith, what's significant here is the fact that stocks and commodities are moving in large part in unison. What does that tell you about investor sentiment?
Yeah, it's a really interesting topic because at any given time it can kind of give various signals, right?
Why is the recent lockstep movement between stocks and commodities a red flag?
But basically the idea is that a lot of these riskier assets, so stocks in the U.S., global stocks, a lot of the commodities, when they're moving in the same direction, a lot of people think that they can kind of indicate excessive sentiment in either direction. So when all of these things are going up together, then that can kind of signal excessive optimism, which is what we saw in January, for example. And when they're going the opposite direction, it might be a sign that things are oversold, and they might keep going that way until there's some sort of external event. So really, people kind of use it as a gauge of where sentiment is and to see what areas of the market they could kind of seek shelter in.
And so when all of these things, again, are moving together, it makes it much harder to figure out what pockets you might prefer or anything like that. So it's really kind of a gauge of sentiment in that regard.
And people you spoke with for your story say that there is more downside in the market to come.
Well, yeah, the story went out, I think, before Wednesday's really big rout. So in that sense, I think they're kind of right about that. But that is the idea, right? Right now, a lot of the correlations are approaching one, which means a lot of stocks and commodities are moving in the same direction. And again, we're in this very down period for markets right now. So that is why I think that is the conclusion people would make. And again, a lot of the moves seem very big. And there are large intraday swings, which tells people that this is just kind of jittery selling at various points and not necessarily people looking at fundamentals like earnings or economic data. They're just kind of very nervous.
That's, again, the thing we've seen in February, like correlations had gotten really high during that sell-off before it, and then again during the sell-off, and that's kind of what we're seeing now again, too.
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Chapters
6 chapters
1
What is the main topic discussed in this episode?
0:05–0:24
2
What recent household cost trends should investors know about (childcare and budgets)?
0:24–1:49
3
How did a Mega Millions winner’s real-estate spending illustrate wealth choices?
1:49–2:29
4
Why is the recent lockstep movement between stocks and commodities a red flag?
2:29–4:39
5
How does correlation measure market movement and what are current correlation levels?
4:39–5:59
6
Which commodities are driving the correlation — is oil or gold behaving differently?
5:59–7:27
Speakers
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