Dollars and Sense: Volatility makes a comeback

No longer marking time. For the past few weeks we’ve been talking about how quiet the markets have been. This week made up for that, I guess. Last Monday, the markets retreated from the previous Friday’s record high Dow close. When I saw that I said, “Well, you can’t set a record every day.” A decline from a record high is nothing to get worried about. Then stocks dropped sharply on Tuesday. They recovered a bit on Wednesday, but then we saw a 260-point drop on Thursday. Then they rose 167 points on Friday. I think it’s fair to say that volatility officially returned to the markets.

Global uncertainty. Global uncertainty is causing most of the market gyrations. The air strikes against the Islamic State in Syria are having an effect, of course. But it’s more than that. Chinese manufacturing is slowing down. The Eurozone is in an era of stagnation. Durable goods orders were off.

Positive domestic news. Here at home, the economic news was better. For example, we got an encouraging report on housing this week. The Commerce Department said new home sales for August came in at 504,000, to the best level since 2008, before the housing crisis. That number represented a rise of 18 percent over the previous year and well above estimates. It was so good that it generated skepticism among some analysts who thought it was too good to be true. In fact, the National Association of Realtors that said August sales for existing homes dropped 1.8 percent. The Commerce Department number and the National Association of Realtors number measures different things, but it is hard to understand how existing home sales and new home sales could be so misaligned.

Employment strengthens. Critics of the recovery say it has been too slow. They lament the fact that unemployment remains above 6 percent. All that’s true, but it is also true that slowly but surely, the employment picture has brightened during the past couple of years. The most recent indicator: Applications for unemployment benefits, though they did rise slightly last week, remain below 300,000, a seasonally adjusted 293,000 to be precise. Despite the rise, applications remain near pre-recession levels.

Tech stock tantrum. There were a number of problem-children in the market this week, but tech stocks threw the biggest tantrum. Alibaba dropped 4 percent on Monday, its second day of trading after the previous week’s public offering. Concern about China seemed to be a factor in Alibaba’s decline. Apple struggled—falling below $100 per share—on news of glitches with its new phones and operating systems.

Walmart on the dot. Perhaps the most interesting corporate news last week came from Walmart. The big box giant has been trying to get in the banking business for years, but has hit regulatory hurdles. Walmart wants to bring its low-cost strategy to a market that pays way too much for financial services. It’s estimated that 1-in-4 Americans don’t have checking accounts. That number rises dramatically for low income people. That means they have to rely on check-cashing services, payday lenders, and other very high-cost providers for financial services. Green Dot is best known for its pre-paid credit cards, but it provides banking services through its GoBank subsidiary. Walmart announced this week that it will start offering low cost checking accounts through a partnership with GoBank. It’s a relationship that could be highly disruptive to the banking industry, and you can be sure I’m going to keep an eye on it.

The week ahead. It’s going to be a huge week for reports. Auto and truck sales. Personal income. Consumer confidence. Construction spending. We get all those reports this week. And, of course, everyone will be watching Friday’s unemployment number. The October number is the last number we get before the mid-term elections. Because of the way the calendar falls, the November number comes out a few days after Election Day, Nov. 4. So if this week’s number is good, Democrats will be campaigning on it for the next 30 days. If it is bad, you can expect Republicans to say it’s time for a chance of direction.