It was set off after the Bank of Japan unexpectedly cut its key interest rate to almost zero. With the yen being at a 15-year high, concerns kept mounting that Japanese exports will be suffering severely. Since every country wants lower currency values to boost their exports, some sort of trade/currency war seems to be almost a sure thing. Let’s hope that cooler heads prevail.
Encouraging news from the Non-Manufacturing index, which jumped from 46.5 in August to a reading of 58 (indicating expansion), helped the market sentiment and the major indexes went off to the races.
As the chart above shows (courtesy of MarketWatch.com), there was no looking back, and we closed at the best level since May.
What bothers me is that we have the happy trio (gold, stocks and bonds) rallying in sync, a condition which can’t last forever. While gold is a great hedge against uncertainty, continuously lower interest rates identify a slowing economy, while the uptrend in stocks would indicate an expanding economy. One of these two will be wrong and will move in the opposite direction—eventually.
If I had to guess, I’d say bond market is right, and the stock market will end up being the whipping boy. However, right now, that does not seem to be much of a concern, so let’s enjoy the ride.