According to ISM data: Dow and oil price with hell ride – the damaged logic of the markets

The following chart shows the Dow 30 since noon yesterday. From 4 p.m. it fell quickly by more than 300 points into the cellar. Then within an hour it rose again exactly by 300 points. What a hell of a ride in the Dow. Why? What’s going on? The ISM data at 4 p.m. was very bad. So the economy in the USA is probably cooling down, which of course puts pressure on equities. So the crash was easy to understand. But what else happened?

As a result of the now more likely cooling down of the US economy, the probability of an interest rate cut by the Fed in four weeks has increased significantly. According to the CME Fed Watch Tool, it was 73% this morning. Now, according to ISM data, it is over 90%. Falling interest rates are boosting equity markets as companies and consumers can borrow more cheaply, and as equities become more attractive than bonds in terms of yield (dividends vs. interest rates). This scenario therefore pushes the Dow upwards again. There is a chance of another rate cut of 25 basis points in a short period of time. What a damaged logic of the stock markets. Quickly down and quickly up again, after computer-controlled trading programs (ALGOS) in particular probably considered what effects this ISM data could have on interest rates and thus also on equities. So which way to go, please?

Exit: Unclear. As we said. Currently the Dow is trading at the level of just before 4 pm. Which side will win? The simple pessimists, or the optimists who are thinking about the next rate cut and could push the Dow further upwards? By the way: In the oil price there has been the same hell ride since 4 pm. First a loss of up to 75 Cents, only to land now at exactly the same level as shortly before the ISM data.

Exit: Unclear. As we said. Currently the Dow is trading at the level of just before 4 pm. Which side will win? The simple pessimists, or the optimists who are thinking about the next rate cut and could push the Dow further upwards? By the way: In the oil price there has been the same hell ride since 4 pm. First a loss of up to 75 Cents, only to land now at exactly the same level as shortly before the ISM data.

Be the first to comment

Leave a Reply

Your email address will not be published.


*