Everyone knew the day would come when the world would once again have to come face to face with the threat of terrorism. My condolences go to the victims.
As insensitive as it may be, the markets will open and so we must think of the ramifications of the London attacks.
- The market decline will accelerate. I have been leaning to the bearish side but this isn’t what I had in mind. Obviously, this news will tip the scales and accelerate the decline. A retest of the April lows is not out of the question. What happens at that time will depend on interest rates, Fed policy and earnings season.
- Treasury interest rates will come down as investors seek a ‘safe haven’. That will bring the inversion of the yield curve even closer. But it could also spur a new round of re-financings which would be a positive for the economy.
- The Fed should put a hold on interest rate hikes. If this is the event that tips the global imbalances over, the Fed will certainly be done raising rates. That would be a positive for the markets since the Fed should stop anyway, terrorist or no terrorists.
- The dollar should remain strong. I would imagine that the Bank of England will be quicker to lower interest rates at this time rather than keep them steady. That will make the US a more attractive place for money.
- VIX seems to find a floor at 11. I have been skeptical of the low VIX = down market theory because over history the VIX has stayed low during bull markets. However, 11 seems to be bottom for the VIX during this market cycle.