Partisans can look at the market sell-off over the past three sessions as evidence that, “oh, my god, Obama/Romney will win!” The reasons are more prosaic. In an overvalued market, earnings of closely watched companies have disappointed: DuPont, IBM, Google, United Parcel Service and Microsoft among them. Others such as United Technologies and Caterpillar have lowered their guidance.
While the U.S. economy is slowly healing, especially in the housing sector, there’s plenty of trouble worldwide. Evidence of a China slowdown is especially troubling, leading to layoffs, for example, at Portland’s Schnitzer Steel Industries. Earlier this month, the World Bank cut its 2012 growth forecast for China from 8.2 percent to 7.7 percent. Weaker sales in China is one of Caterpillar’s big problems. China is changing, too, losing its low-cost labor advantage. Also, the diplomatic crisis between China and Japan is worrying companies and investors.
Meanwhile, much of the eurozone is in recession and neither austerity nor the European Central Bank have solved the continent’s underlying problems. Spain is getting worse. European stocks and bonds are plunging. World markets move in sync. It’s interesting that none of these issues came up at Monday night’s “foreign policy” debate, although Mali did.
Everybody’s got a theory. Nomura’s uber-bear Bob Janjuah predicted last month that stocks could fall 20 percent to 25 percent this year, before backing off the downside a bit. He also argues that the Federal Reserve’s QE3 has had little effect (on the other hand, you might look at the relatively better performance of the U.S. economy and worry that the Fed will take away the punch bowl). NYU’s Nouriel Roubini sees a world of trouble because of inaction by policymakers. There’s worry about the fiscal cliff…
October is rarely kind to the stock market — we just marked the 25th anniversary of the huge 1987 crash. Back then, although many didn’t realize it, we were on the verge of a long bull market. Now, most indicators point to a long period of slow growth and, in some areas, contraction.
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Today’s Econ Haiku:
Not like old stable pensions