WASHINGTON. It’s Tuesday morning. Battered stocks, preferred stocks, bonds and commodities are trying yet again to recover from the latest Monday horror show on Wall Street. If the 10-year secular bull market and the two-year Great Trump Rally ever looked like they’d run their course at last, the heavily negative post-Labor Day trading action on Wall Street offers ample confirmation. The bullish trend is no longer our friend.
Battered stocks just can’t catch a break
Everyone who once wanted in to the stock market now wants out. And in the worst way. Bid-ask spreads, even in larger, more deeply traded company stocks are 5, 10, 15 cents apart where most of these big guys usually boasted only one- or two-cent spreads. Why? Because there are no willing buyers. Or very few. Which means that individual stocks and the ETFs that represent major industry groups now go down at breathtaking speeds. The swiftness of the declines, in turn, leads to forced selling in margin accounts on a massive scale, exacerbating the decline.
This fall’s continuous mass ejection of stocks, preferred stocks and bond holdings from portfolios small to humongous hasn’t occurred with such violence in years. However, we did experience a preview of this kind of action last January and February. Maybe that was our warning.
At its worst during the market’s latest Monday bloodbath, the Dow was off another colossal 625 points or so before coming back in a bit. But it was still horribly down on the day. Again.
Monday’s investment death toll, Wall Street-style
CNBC has the Monday scorecard.
“Fears an expected rate hike from the Fed this Wednesday will be too much for the stock market and economy to handle sent the S&P 500 lower by 2 percent on Monday to 2,545.94 — and as low as 2,530.52 on an intraday basis. It’s previous low was in February. The Dow Jones Industrial Average plunged 507.53 points on Monday — or 2.1 percent — to close at 23,592.98.
“The Dow and S&P 500, which are both in corrections, are on track for their worst December performance since the Great Depression in 1931, down more than 7 percent so far for the month. The S&P 500 is now in the red for 2018 by 4 percent.”
Tuesday morning’s half-assed rally attempt
Tuesday’s opening market action has been positive thus far, but not impressively so. The Dow is up over a percent. But the broader-based S&P 500 and the tech-heavy NASDAQ, while also in the green, are not performing impressively, as both are up significantly less than a percent as we near the noon hour ET. Battered stocks are catching a breath. But not much more. The market in general, is getting waterboarded. Again and again.
As for our own preferred stock and ETF share heavy portfolios, we’re down again anyway, mainly due to interest rate fears that hinge on tomorrow’s (Wednesday’s) Fed interest rate decision and future prognostications.
No one wants to fight the Fed. Even if they’re wrong. Which they are.
70 percent of advisors now think the Fed will indeed inflict its latest, damaging 0.25 percent interest rate hike on the middle class tomorrow, just because they said they would. Not announcing the hike would be a big surprise to traders, but that could make the market react in unpredictable ways.
Optimists, on the other hand, think the Fed may back off that expected December rate hike and figure stocks would rally. But it’s only a guess.
Most Fed followers think (or hope) that the Fed will indicate far less enthusiasm for another complete round of rate hikes in 2019. That may cause a positive reaction in stocks, which have been utterly destroyed by the Fed’s headlong pursuit of interest rate “normalcy” just when the middle class thought it had a chance to save itself. Just like the rich did back in 2010. But there’s little evidence that today’s Washington bureaucracy cares very much about the fiscal well-being of America’s Deplorables.
Your guess about what Fed Chair Powell says on Wednesday afternoon is about as good as ours. Fingers crossed, but don’t expect a lot from Mr. Market. He probably wants to crash on the news no matter what it is.
If it looks like a bear market and feels like a bear market…
All this uncertainty makes it really tough for small investors like us.
Even some of our favorite, nearly-always reliable chart indicators haven’t been very helpful lately in figuring out where this badly damaged market and all those battered stocks will head next. The McClellan Oscillator, for example, closed Monday way below the zero line, which usually indicates a significant short-term rally is on the way. But if what we’re seeing today is a rally, God help us. We’re not sure whether some of our own battered stocks, like hapless Allergan (trading symbol: AGN) will ever get back to breakeven in our lifetime. It’s pretty grim out there.
Lately, the pattern has been for the Dow to lose at least 1000 to 2000 points on each selling wave. And then the average will gain a few points on a dead-cat bounce rally before another 1000 to 2000 point selling wave begins. It’s like one baby step forward, then 5 giant steps behind. That’s no way to make money, unless you have the guts to go way short. Which, over the past 10 years has generally been suicidal as the bull tended to return to the fray right after you’d put on your final short.
Although we could see a good rally at almost any time, given how oversold these battered stocks and markets are. But we are clearly in a nasty bear market right now of unknown duration. In a bear, you’ll get occasional upside rallies. Just like you’ll get sometimes-nasty mini-crashes in a bull market.
But since Labor Day, it’s clear we’ve shifted into a bear market pattern of unusual breadth and harshness.
Mr. Market is depressed this holiday season. So are the battered stocks your portfolio
According to one investment guru (behind a paywall, so no link):
“The problem with bear market rallies …is that they are typically highly deceptive and usually sub-par in magnitude and duration. What the action of the last few sessions has taught us is that there is new evidence to add to the primary bear market case. That evidence comes both in terms of additional trend deterioration and the dramatic way in which prices have failed to respond to the kind of internal measurements that should have provided a strong launching pad for the elusive year-end rally.”
In other words, no matter how many positive headlines pop up, no matter how well companies are performing right now, Mr. Market has basically decided everything is going down. Period. Only a major investor surprise could alter the course of what appears to be a confirmed bear market downtrend. The veritable tsunami of headline risk scenarios right now leaves little room for near term hope. That’s something we’ll explore in a future article this week.
As we pass the noon hour, the Dow is up 220. But predicting today’s closing number is a fool’s game in this market. We’re not going to do it. Right now, investing in the stock market is as much of a crapshoot as it ever was.
— Headline image: “The Scream” by Edvard Munch, 1893 version.
(Public domain image via Wikipedia entry on the painting, view modified by the writer)