The market killings are over for now, but volatility is the new black

Surprisingly, the weak economic data in the United States until last week was positive for stocks because it was seen to increase the size and frequency of rate cuts. Generally, discounts are good for sharemarkets as they make it easier for companies and consumers to borrow money.

But this time, weak labor data led to fears that optimism for an easy stay had waned and that the world’s largest economy was slowing down.

The ironic part is that this view reeks of unwarranted pessimism, and most mainstream economists don’t share it – nor do they think the labor market numbers were too weak.

It was felt that the reason for investors to sell the market is because its shares have become very bleak – the result of that, again, in the parlance of the stockmarket called “crowded business”.

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Stocks are what we can call popular stocks: stocks, or indexes, that investors have been flocking to this year. Demand drives prices up to levels that are not supported by their original value.

Top US tech stocks are an example. Their heavy weighting in the Nasdaq and S&P 500 means that Wall Street is vulnerable to any selloff in this stock.

The biggest of them all, chipmaker Nvidia, dominates the market almost single-handedly creating a sharemarket tsunami.

In three trading days, Nvidia fell 24 percent and took a septet of tech giants – Apple, Meta, Alphabet, Microsoft, Amazon and Tesla – on a wild slide.

In the past eight months, the so-called “good seven” has been the most popular business in the American market, mainly due to the enthusiasm for the next generation of AI and its ability to to increase their income.

There are now questions being asked about the timing of this future earnings explosion. Nvidia’s share price had begun to fluctuate in the past six weeks as there were doubts about whether its popularity had passed.

For another example of a thriving business, closer to home, we need look no further than our “four good banks”.

For months, hard-line heads in the stockbroking community have warned that bank rates – particularly for the daddy of them all, the Commonwealth Bank – are rising far beyond ideal levels.

Despite what is becoming a period of low interest rates for banks, investors have been squeezing these shares all year, and it seems that few were prepared to bet that they will go down.

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This booming business was about to be hit hard by a market correction. And while banks recovered well on Tuesday as the Australian share market steadied, they were hit on Monday. And because junior lenders and several large miners dominate the S&P/ASX 200, the fall in bank shares has had a particularly negative impact on the wider market.

Between Thursday and Monday, CBA’s share price fell more than 8 percent, Westpac was down 7 percent, NAB was down 8.6 percent and ANZ was down 6 percent.

A third example of a thriving business is Japan. Investors around the world have been borrowing Japanese yen because of the country’s low interest rates, and investing in high-yielding assets.

Japan’s rate hike last week and investors trying to lower the yen’s “business” were part of a domino effect that wreaked havoc on global markets.

Equity markets continue to be dominated by index-tracking investors rather than stock pickers, which worsens herd investing, hence the crowded business, and makes it more volatile. which can be more challenging than anything else.

Ironically, the US recession is the most likely factor.

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But come on, with the US election on the horizon, the ride could be tough for a while.