An Analyst Argued that Stock Market Volatility Does Not Disturb Middle Class American

By Staff Writer

Feb 12, 2016 04:31 AM EST

Although many have concern that instability in stock market will affect general economy, but an International economist argued that market condition is far from disturbing middle class American. Nevertheless, the volatility continues as indexes fell consecutively in five days.

In a recent note to client, chief International economisf ot Deutsche Bank Torsten Slok wrote, "Given how small the positive wealth effects have been over the past seven years then it would be a surprise if the negative wealth effects are big, in particular in a situation with consumer sentiment for middle income groups rising in January and at levels higher than in 2005 - 2006," as quoted by Business Insider.

"Put differently, the lack of a slowdown in the broader macro data including consumer sentiment, the unemployment rate, the quits rate, job openings, hours worked, wage inflation, and jobless claims [Thursday] morning, suggests that the negative wealth effects are indeed going to be limited," he further stated his argument.

However, January's job report showed a weaker outlook than previous month. Another analyst, Scott Brown, a chief economist at Raymond James wrote that, "There is concern that fear of recession could become self-fulfilling prophecy … That is, consumers (fearful of losing their jobs) may save more and spend less, and businesses may be reluctant to commit to capital expenditures — and the economy slows."

In the stock market, the turmoil continues around the world. As Dow Jones Industrial Average and S&P500 continue to slide on Thursday. While Asian market rout also extended.

Market Watch reported DJIA fell 1.60% and close down losses cut in half at one point 255 points, or 1.2% lower at 15,660. The slide was mainly contributed by almost 7% drop of Boeing Company (BA) stock. This marked the lowest closing level in two years.

While S&P 500 index also dropped 1.2% and closed at 1,829 the lowest since April 11, 2014. Both indexes showed a two-year low level.

In Asia, Japanese Topix index fell 5.4% and MSCI's Asia Pacific Index also slumped 2.8%. Meanwhile, Hong Kong's Hang Seng Index lost 1%, Seoul's Kospi index slipped 1.4%, and Australia's S&P/ASX 200 Index dipped 1.2%.

Strategist at Tokyo-based Toyo Securities Co. said Ryuta Otsuka told Bloomberg, "We're in a moment where Peter Pan thinks he can't fly any more." In regard to the market sentiment, he added, "When everyone thinks they can't fly, we're doomed. There's nothing we can do but to try and overturn that sentiment."

For a short-term, volatility in stock market may not yet affect American middle class. However, as market volatility continues and weaker job report outlook, it may raise a concern as indexes fell for five days straight.

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