US stocks plunge
Monday's plunge on US stock markets and the Dow Jones' worst point decline in history were followed on Tuesday by major fluctuations. Both the Dow and Nasdaq finished higher at the end of the day, however. Central banks and private investors shouldn't panic, journalists advise.
Leave room for manoeuvre for next recession
The falling share prices shouldn't prevent the central banks from finally raising interest rates, the Neue Zürcher Zeitung stresses:
“Indebted states and investors are urging the guardians of the currencies to put the normalisation of monetary policy on the back burner and refrain from increasing interest rates. The desire to elegantly 'inflate' the debt problem out of the way is all too great. But if the central banks give in to this pressure they will not only undermine their own credibility, they will also leave themselves no room for manoeuvre in interest rate policy the next time a recession looms. The central banks must therefore not allow the recent turbulence to divert them from their normalisation policy. Regardless of any turbulence on the stock markets, the interest rate risks must once again be borne by the debtors.”
Keep calm and hold on to your stocks
Upsala Nya Tidning has a piece of advice for its readers regarding the stock market turbulence:
“Keep calm: a drop in share prices occurs when stocks are sold and small shareholders join in, speeding up the plunge. That, in turn, provides a good buying opportunity for the big players. That's how this has always worked, and the only good advice for the rest of us is to sit tight and not rock the boat. As long as you haven't sold anything, you haven't lost anything. The stock market stands for long-term investments. The only real stock market crash was in 1929. Those who feel uneasy - which is legitimate these days - can put their money in other stocks or securities. But without a doubt the best thing to do after a massive drop in share prices is nothing at all.”
End of the lean period in sight
Paradoxically the drop in the Dow Jones was triggered by a piece of news that should have been cause for celebration, Der Standard explains:
“In the US salaries are rising at a quicker rate than they have in eight years. Higher incomes generally mean higher inflation and therefore higher interest rates, which is what made investors nervous. In reality rising incomes are the last piece of the puzzle that was missing to ensure robust growth. For years salaries in the US and the Eurozone stagnated. This not only led to social tensions and growing inequality, it also restricted consumers' buying power. So an end to the lean period would be good news from both a socio-political and economic perspective.”
Stock markets dependent on cash injections
The stock markets have become addicted to the glut of cheap money, Il Sole 24 Ore complains:
“The panic that spread on the financial markets on Thursday and Friday because of the rise in wages in the US and the wage demands in Germany once again makes unmistakably clear how far removed the stock markets are from the real economy. The rise in wages is the key link that was lacking in this global economic upturn which so far has created more inequality than prosperity. The prospect of it actually happening should be good news for everyone. ... Also for the financial world. But the markets, which have long since become dependent on the needle with which the central banks have injected more than 15,000 billion dollars into the markets since 2008 only see the downside: the risk of rising inflation and the central banks withdrawing their cash injections sooner than anticipated.”
Financial markets completely off balance
There can no longer be any talk of normality as far as the financial markets are concerned, La Tribune de Genève believes:
“Is this a return to normality, or to a normal world? The truth is rather that the world is upside down. For example, aren't we seeing the dollar drop in value although interest rates are rising? And didn't the dollar rise not long ago although interest rates were sinking? This complete inversion of normal patterns shows once again - in case it wasn't already clear enough - how the central banks' extraordinarily expansive policies (negative interest rates, quantitative easing) have thrown things off balance and confused the markets.”