Today's Volatile Market: You Can Run, But You Can't Hide
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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. October is over, but the market volatility is not. In fact, if you're hoping to escape the effects of market tensions, the truth is you can run, but there's almost nowhere to hide. We'll explain in a moment. First, these money and market stories you should know. Compensation for U.S. workers grew at a seasonally adjusted 0.8% in July through September. The gain was an increase in the second quarter's 0.6% advance and matched expectations of economists surveyed by the Wall Street Journal. Wages and salaries rose 0.9% and benefit costs, which includes health coverage, retirement benefits, and paid leave, grew by 0.4%.
How did October’s market sell-off impact global stocks and portfolios?
The increase was led by improving pay for private sector workers. Wages and salaries, which account for about 70% of total compensation, rose 3.1% from a year earlier for private sector workers. That was the strongest year-over-year gain since the second quarter of 2008. At the same time, however, U.S. companies are raising prices, passing on higher costs for fuel, metal, and food to their customers after years of low inflation. Clorox said it was raising prices in the latest quarter on such products as cat litter, and Coca-Cola reported higher prices for the quarter as well. Other airlines, manufacturers, and food makers also have announced price hikes over the past week. Inflation is edging toward 2%, but price rises could pick up if pressure from labor shortages and tariffs intensify in a still robust economy.
On the other hand, other factors could offset price increases, including the stronger U.S. dollar, which makes imports cheaper.
How bad was it for the markets in October? Well, globally, stocks lost more than $5 trillion in value.
What data on wages, benefits, and inflation are influencing investor sentiment?
So now that we've turned the calendar over to November, can we take a breath of relief? Well, maybe not. Wall Street Journal markets reporter Michael Worsthorn joins us to explain. So, Michael, very often we hear that diversification is a reliable way for investors to insulate themselves from market volatility. That might not apply to this stretch of uneasiness.
You had a rare situation where in the last month where bonds and stocks both broke down and really shook this foundational investing principle, which is you have to diversify. You have to have stocks, bonds.
Why did both stocks and bonds break down and challenge diversification?
I mean, the split that most financial advisors would tell a client is 60% equities, 40% bonds. But if you were allocated that way, which many traditional investors are, you would have seen your portfolio fall more than 3% this past month in October, which is unheard of. I mean, you don't see a diversified portfolio like that take that kind of hit unless you have stocks and bonds reacting the way they do. And the hit was so bad that for the year, those investors would be down more than 1%. And that's only something that's happened three other times, the last time being in 2002, the other two times, 2001 and 1990. And those were other periods of volatility, but it just shows how rare that a diversified portfolio
can fall as much as it has into negative territory. So we really are in unusual times. And it's making a lot of investors anxious.
You know, something that is fairly unique to this situation in October's market downturn is that it has not sent investors looking for bargains. They're instead stockpiling cash. What's the message behind that?
That's telling portfolio managers, strategists, and other investors that the volatility is just so scary, so off-putting, that investors are more willing to sit with cash, with something that they just feel is safer, a safer store of their value, than to take a chance by taking advantage of some of these steep pullbacks. I mean, shares of Amazon, for example, were down more than 20% at one point during this October sell-off, putting it into bear market territory. But still, I mean, a lot of financial advisors and portfolio managers say, weren't willing to wade in and buy some of those assets. So the cash is really a signal that investors just feel that there is no safe place to enter into the market at this point.
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Chapters
4 chapters
1
What is the main topic discussed in this episode?
0:05–0:46
2
How did October’s market sell-off impact global stocks and portfolios?
0:46–1:55
3
What data on wages, benefits, and inflation are influencing investor sentiment?
1:55–2:31
4
Why did both stocks and bonds break down and challenge diversification?
2:31–9:28
Speakers
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