It looks like we will begin the day with another stock market drop in the U.S. On a historical basis when stocks have dropped interest rates have fallen as folks move to ‘safe haven’ assets. This had not happened in the last few days, but today it looks like rates will drop by a fair amount as the 10 year treasury is trading at 2.73% after closing yesterday around 2.82%.
At this time we are not overly concerned with market movements–not just because we have mostly escaped damage, but because while these large point drops make headlines the movements are not overly crazy–remember we have had so many days in the last year with rises of 200 or 300 Dow points. The bigger damage is done to investors who are somewhat new to investing–each time we have market moves like this it takes years to get these folks back in the market after they are spooked and choose instead to move to cash for no return–a lot it can be blamed on the sensational headlines the media puts out.
It will be interesting to see how income securities react to the interest rate drop. Will they bounce a little? Or will the equity downdraft cause a “throw the baby out with the bath water” reaction with even preferred stocks and baby bonds falling off?
We shall watch closely with interest today as we have for almost 50 years now. The markets never fail to ‘entertain’ us and contrary to the know-it-alls on the TV we find there are always things to learn.