The Stock Market Is Entering a Prolonged Period of Chaos — and That’s a Good Thing

Global markets have been in a state of acute panic this week – a sudden burst of chaos in what has otherwise been a fairly calm and predictable year.

The dizziness started in Asia: Japanese markets crash early Mondaywith the Nikkei index down 12.4%. The tremor then spread across the world as cryptocurrencies – supposedly an uncorrelated store of value – experienced a temporary loss of control, crashing along with everything else. By the end of the day, it was clear that US stock markets couldn’t catch their breath. Completely detached from reality, hearts pounding wildly up and down Wall Street, The Dow Jones Industrial Average closed down more than 1,000 points, down 2.6%, while the tech-heavy Nasdaq fell 3.4% and the The S&P 500 fell 3%In the days that followed, the market jumped or fell with each new piece of news, causing a feeling of oppression in every investor.

As with any panic attack, there are many reasons for its sudden onset, stemming from long-known anxieties that we may or may not control. After the Bank of Japan raised interest rates, the Japanese yen suddenly appreciated, confuse the carry tradeA popular Wall Street strategy which has been successful for years, but requires calm markets to sustain itself. Added to this are concerns about Big Tech, pillar of the booming market of 2024After ending earnings season with little to show for AI investments, concerns that companies wasted $1 trillion on the nifty but unproven technology have gone from whisper to open debate.

But most importantly, the market had a hard time digesting the July jobs report, which showed that the United States created only 114,000 new jobs last month, well below economists’ expectations. The main reason for the market’s calm this year is the strong belief that America’s battle against inflation will end with a soft landing, an ideal scenario in which prices are controlled without a wave of job losses. The recent rise in unemployment (which reached 4.3% in July) has forced Wall Street to accept that its perfect economic scenario is in jeopardy and that the Federal Reserve, which has been focused on controlling inflation, may be late in cutting interest rates to support the labor market. That was enough to send the market into a full-blown tantrum.

Wall Street’s baseline remains a soft landing. Fed Chairman Jerome Powell is expected to step in to revive the economy in September. And the recent weakness in the jobs market is likely to be just a bump in the road to a more sustainable existence. But even a little doubt can be pernicious in finance, a world ruled by probabilities. After a long absence, fears of a possible recession in the U.S. economy have returned to the forefront, sending market participants from macroeconomic traders to stock market speculators into panic.

The story continues

All this chaos is a warning that a new…