A shock from a Japanese stock market drop has investors on edge this morning. The Nikkei Index dropped 7% in a very short period of time sending investors to the sidelines. Conflicting indications from the US Federal Reserve bank has also added to uncertainty about when quantitative easing will be cut back. A bad manufacturing number from China rounded out a trio of negative events and the Dow index started the day down triple digits with the Nasdaq and S&P 500 Index following suit. US economic data has soothed investors to a degree and markets are recovering slightly as volatility settles out. US home prices were up significantly year-to-year and new home sales were up and ahead of expectations. In addition, jobless claims were down, and ahead of expectations, indicating that the US economic recovery remains on track, although less than robust. Oil is down nearly 2% in reaction to international data and gold is up on safe-haven buying. Interest rates on the 30 year mortgage have surged nearly a quarter of a percent in recent days, which may dampen home sales and refinance numbers in the future. The Japanese stock market drop is a reminder that negative events are always lurking and when markets go up too fast, they can quickly reverse. But today’s negative US market reaction is probably overdone and, at least for today, we will likely see a rebound as US economic data provides a needed lift.
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