Good news is bad news: Deconstructing the market sell-off

Feb 13 15:02 2018 Print This Article

Stocks globally have experienced more than a week of tumultuous trading, with the U.S. stock market officially in correction territory. And after being relatively sedate for years, the VIX Index has risen dramatically in recent days, indicating rising volatility. Stocks have moved so far so fast that investors have experienced financial whiplash and are trying to understand what caused markets to change course so abruptly. To put it simply, almost everything that should be a positive for stocks is now a negative for stocks.

Consider:

Strong wage growth. In the aftermath of the global financial crisis, the U.S. jobs recovery had been very weak. But over the last several years, the employment situation has improved substantially – although wage growth has remained quite lackluster. Then the January 2018 employment situation report was released more than a week ago, indicating that U.S. wage growth had risen significantly, reaching a level not seen since 2009. While one would assume that data indicating a major improvement in the quality of the jobs recovery would be greeted positively by markets, it was not. One reason is that higher wage growth is likely to cut into corporate profits, thereby lowering the earnings outlook. And, more importantly, higher wage growth raises the specter of higher inflation, which in turn suggests the U.S. Federal Reserve (Fed) might have to act more aggressively in tightening. And so this data point was actually the trigger that began the sell-off.

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Trimark Investments Blog

As one of Canada’s leading investment management companies, Trimark Investments is singularly focused on putting investors' interests first. Invesco Canada offers a diversified suite of investment solutions to investors across the country and around the world. The blog is comprised of portfolio managers, who are often asked about their views on various investment-, market- and economy-related topics and how these views impact investment decisions. Trimark Investment blog intends to answer the questions Invesco Canada is frequently asked.

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