Wall Street was so much more comforting when it was ignoring the obvious. Even as the meager recovery stalled this year, and the trade deficit rose further, and Congress stood by watching, the market—how do you not personify something that seems to have a mind of its own?—continued its optimistic climb, reaching an increase of 93 percent over its 2009 low.
No matter that it was taking the average unemployed person more than 40 weeks to find a new job and that the overall economy was making only halting progress. The rebound in corporate profits, though powered partly by keeping many of those same Americans unemployed, was too shiny to resist. But this month, at last, the stock market has put on its wet blanket and come out to watch the fires with the rest of us. The odd dip notwithstanding, investors had been the one group of shoppers with the confidence to buy. With nauseating speed, that’s been replaced with an unsettling truth: Nobody, the market included, has any idea what this economy will do next.
Until the past two weeks, the VIX, a measure of the S&P 500’s volatility, had been steadily declining. But from August 5 to August 11, the volatility index rose by 40 percent, hitting its highest level since the topsy-turvy postcrash months of 2009. The undulations left Wall Street pundits to venture explanations. The first big dip, on August 4, was blamed on rumors of Standard & Poor’s dubious downgrade of the U.S.’s creditworthiness. The Monday after the actual downgrade, it dove yet further—but maybe that was because of Italy’s and Greece’s continued impotence? Then came the U-turn on the Fed’s guarantee that it’d keep interest rates low into 2013, news the market first found disappointing, until it decided it was cause for a rally. By the time the markets opened the next day, it was time to plunge again. (This time, at least, we could blame the French, who were now the ones rumored to be on the cusp of a credit downgrade.) To end the week, a race back up the mountain, on positive—but not that positive—unemployment and retail news.
Rumors and hard data alike have always moved stock prices, but what’s new is how hysterically traders (and their machines) are reacting to each scrap of intel. Consumed with the same thought that’s been stalking many of us—what if 2008 was just the first dip?—the market seems determined not to get caught off guard a second time, bailing at each whiff of trouble. Then, upon realizing that it’s not, in fact, 2008 all over again, at least not yet, the market snaps back wildly. This is what it looks like when the market has finally admitted it doesn’t know the answers, except the most worrying one, which is that Washington won’t be goosing the economy anytime soon. It is manic until depressed, depressed until manic. The only thing that lasts is the anxiety. Which makes it a market for our moment—not the one we’d prefer, but the one that fits.