There is one sense in which the gyrations of the stock market are not random or ambient noise: large amounts of “money” leaving a falling stock market for cash increases the demand for cash. This is deflationary. Deflation is believed to be the chief adversary of the central bank.
So to discourage this cycle, the Fed is apt to keep interest rates low, and that’s exactly what they are doing. Low interest rates discourage holding cash, or exchanging stocks for cash, because the only way cash “earns” anything is through interest.
So today all the big money Fed followers shed some cash and plowed back into equities.
The spectacle is probably over, for now. The can was kicked down the road a little further, and no one is quite sure when we are going to run out of road.
All of this action is completely divorced from anything even resembling what we would properly call “economic activity”. Nothing is being produced, and no production is even being encouraged or fostered by large institutions moving already existing equities back and forth. It is, in fact, sort of a losing game for everyone, in the sense that there is no hope of gaining anything, there is just potential loss. If holders of stock sell for cash that’s deflationary and everybody loses. But if they just hold, it’s not like anybody gains anything.
So what does this all mean? Not much. More stagnation waiting for the other shoe or shoes to drop. The S&P could downgrade US debt over and over but it might not result in people unloading US debt – if that’s all there is.
And maybe that’s it. There is nothing but debt, so there’s no place else to go, unless someone wants to actually produce something. But who wants to do that, when it’s far easier, less risky and more profitable to become a central bank minion and hang on their every word?