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On Tuesday, we had another wild, wild, wild ride in the markets. After Monday's stunning decline in the stock markets, on Tuesday morning, the markets fell again in America, then they rebounded, fell, rebounded, and ended the day on a fairly positive note, clawing back some of their dramatic losses. Now, if you want to be optimistic, as many investors are desperate to be, you can say that what we saw Monday was just another version of the kind of crazy, computer-driven flash crashes we've seen in the past few years.
Where, essentially, funky new products, in this case a type of derivative product linked to the Vix index, suddenly malfunctioned, creating dramatic losses for a few investors holding those Vix products and essentially sending the markets into a tailspin. So, if you want to be optimistic, that's now washed through, and now we're back to a more normal pattern where investors are looking at fundamentals like growth. But, if you want to be pessimistic, you can say that actually what's really going on, is that investors are finally waking up to the prospect of not just return of some inflation, but also the fact that central banks are starting to put up interest rates in a fairly synchronised manner.
And it's still to be seen whether or not investors have really adjusted to a world where QE is well and truly over, and where yields are heading back up again. And one other point to note is that although stock markets rallied late on Tuesday, the yield on 10-year Treasuries is rebounding too. And that could be a sign of changing times.
