The cliché is that markets are driven by greed and fear. Less remarked on is the asymmetry of tolerance between the two. House prices, say, can triple over the years with barely a murmur. But the moment they fall by even a tenth, investors squeal like little girls. Are the latest wobbles in markets, therefore, an overreaction or a sensible response to genuine change?
From the lows last year global equities rebounded by an average of 70 per cent. Many indices doubled. Now they are off between about 8 and 15 per cent since the beginning of April. That is hardly a wipeout. At least in the short term, companies seem to be healthy. Economy wide profits in the US, for example, rose by a third year-on-year in the first quarter. Interest rates, to which valuations are particularly sensitive when they are depressed, are likely to remain low for some time.
A temper tantrum then? Maybe not. That oil prices are also down by a fifth, and 10-year Treasury yields by 60 basis points, suggests that investors are actually worried about fundamentals. But here the evidence is mixed. For every scare story about Greece there are other signs that the eurozone economy is recovering. Yesterday's German factory orders data for April, say, were very strong. US payrolls data spooked markets on Friday, but earlier in the week productivity numbers capped off the sixth strongest four-quarter change since the series began.