The Markets


Happy birthday United States of America!

U.S. stock markets gave Americans plenty of reason to celebrate over the 4th July weekend. The Dow Jones Industrials Average earned ‘oohs’ and ‘ahhs’ from investors and pundits as it shot above 17,000 last week (a significant gain from March 2009 when it traded in the mid-6,000 range). Barron’s pointed out the Standard & Poor’s 500 Index was no slouch either having closed “above its 200-day trading average for more than 400 consecutive trading days, the second longest streak in the last 50 years.”

Market highs, however, sometimes cause investors to engage in emotional behaviors like anchoring – assigning random meaning to numbers or milestones. Some investors may decide that the Dow surpassing 17,000 means the market is overvalued and they should sell even though they have no specific evidence to support the idea of overvaluation. Not everyone agrees that’s the way investors will roll. Experts told they expect the new high to spark buying rather than selling particularly if herd instincts are set off. Herding describes a situation in which investors gravitate toward specific investments because everyone else is doing it.

Emotions also were running high during the second quarter for reasons having nothing to do with markets. A publicly-traded social media site let it be known it had conducted a psychological experiment on about three-quarters of a million users without their express knowledge. The study’s over-the-top name, Experimental Evidence of Massive-scale Emotional Contagion through Social Networks, brings Austin Powers movies to mind.

Bond markets, as they have throughout much of 2014, continued to confound investors and analysts. According to Barron’s, last week’s strong U.S. jobs report, which is credited with pushing stock markets to new highs, may have given investors a déjà vu moment when 10-year Treasury yields rose and then settled back down. According to the London Stock Exchange, the electronification of bond trading is well under way. Having gathered real momentum in recent years, the process is expected to gain ground still further as pressures mount on market participants and they become more comfortable with the concept. Few are better placed to observe these changes than fixed-income trading venue MTS. Majority-owned by London Stock Exchange Group (LSEG), MTS celebrated 25 years of operations in September 2013 and its CEO Jack Jeffery, expects the ratio of voice to electronic trades of government bonds to change dramatically over the next few years.

The World Bank expects the global economy to gain momentum during 2014. Its June report found economic growth in developing countries is likely to be disappointing this year coming in below 5 percent largely because of first quarter’s weakness. Developed market economies have fared better year-to-date. The Euro Area is expected to grow modestly during 2014. Expectations for the U.S. were revised lower after first quarter’s contraction, but the economy is expected to grow during the remainder of 2014.