A walk down Wall Street

No one yet knows whether this week8217;s shudders mark a pause before prices glide serenely upwards again or the start of a proper tumble. One apparent cause of the Shanghai slide, a rumour of a planned tax on capital gains from shares, was denied. The market steadied there on February 28th, but fell again the next day. Markets in Europe and elsewhere in Asia were nervous, though Ben Bernanke, Mr Greenspan8217;s successor8230; seemed to have soothed Wall Street. Given that people still argue over the reasons for the crashes of 2000, 1987 and 1929, it would be premature, to say the least, to tie this week8217;s events too closely to basic economic causes.

You can say, though, that the fall in the Chinese market may simply have been the jolt the markets needed to take a second look at the risks they have been taking. The natural starting point is the American economy. Long before it was confirmed on February 28th, the downward revision of fourth-quarter GDP growth, to 2.2 at an annual rate, was expected. And the economy appears to have begun the year sluggishly8230; There had been signs that the bond markets had twigged, with Treasury yields falling in the past few weeks. Until this week, however, the markets for shares and many other things did not seem to have taken all this on board. Now, perhaps, they have.

One sign that things are slowing down came in the form of those disappointing orders for durable goods, which fell by 7.8 in January, far more than expected even after stripping out surprisingly poor demand for aircraft8230; That American companies are not confident of investing profitably is reflected in forecasts for annual profits growth, which have fallen into single figures after three and a half years in double-digit territory. Having chopped8230; the past few years8217; numbers and adjusted for changes to accounting rules, Albert Edwards, a market watcher at Dresdner Kleinwort, even reckons that the recent profits record of non-financial firms is no more impressive than in the mid-1990s.

Excerpted from 8216;The Economist8217;, March 1