What the stocks dislike in these days

American presidential elections are fast approaching and the stock markets don’t like it one bit. At the beginning of the new week majority of the world’s stock indexes dropped. You can’t see something disturbing in all the stock indexes on the first sight. For example, the index DJIA is stagnating just above the 18 000 level since circa 10th September which is certainly not suggesting any danger. German index DAX is stagnating around the level of 10 400 points for about the same time. Also no big problem. But if we look at the index S&P 500 we can see a gradual but continual drop since the end of September. What is worse: Index is very closely approaching the level of 2 120 points which from the view of trading mechanism can be seen as somewhat relatively strong “support” – or value on which the automated trading starts.

If this level got conquered, understood as if the index dropped under this level, the setting of automated trading would sharply depreciate it even more. Index S&P could obviously take other markets down with it as well. While today there is only 12 points left to reach this level… This is what I mean when I’m saying that the stock markets are not liking the upcoming presidential elections one bit.

There is more of what the financial markets don’t like. For example, central banks (especially in Europe) were asking to get the inflation increased for years. And when the first signs of inflation started to show the financial markets are more disgusted from it than a cat from the idea of getting into the bathtub. (Paradox is that understandably the first signs of inflation weren’t induced by the steps of central banks in form of loose monetary politics but they were induced by the current movement of oil prices on the world markets.) Said disgust has its even though a bit twisted, logic. When central banks reach its goal in form of higher inflation they will stop supporting financial markets with a flow of cheap money which will stop supporting the growth of stocks and bonds. The result of this bitter mood of financial markets is again just a negative influence on the prices of European stocks and bonds.

Better not to think about how the central banks longed for higher inflation because – according to us wrongly – assumed that this higher inflation will bring bigger economic growth. With higher inflation they will start ending their support of economies except this end will come just at the time when the economic growth started slowing down (!), not speeding up how it supposedly should with bigger inflation.