By Isaac Cohen*
Technically, the stock market experiences a correction when it falls at least 10 percent from a recent peak and that is what we have seen during this month. The question is how come the market is moving in the opposite direction of the economy. As President Donald Trump said, perhaps perplexed, “today, when good news is reported, the Stock Market goes down.”
True, the departing Chairwoman of the central bank Janet Yellen has delivered an economy with solid fundamentals, growing 2.5 percent, at almost full employment and low inflation. In this context, there are some easy explanations of what is going on in the stock market. For instance, some appeal to Newton’s physics saying that anything that goes up must come down. Others invoke the maxim that the market does not determine the economy.
However, part of the explanation may be found in the way the markets are reading the most recent economic decisions emanating from Washington. After the recent approval of tax cuts, the bipartisan approval of a budget and the presentation of an infrastructure plan, the government is providing stimulus to an economy that is close or is already at full employment. Investors know this will push the central bank to increase interest rates more rapidly, bringing to an end the easy money policy which sustained the third longest US economic recovery and the spectacular stock market boom.
*International analyst and consultant, former Director ECLAC Washington Commentator on economic and financial issues for CNN en Español TV and radio, UNIVISION, TELEMUNDO and other media.
