Bi-polar stock market prolongs its 2018 Festival of Investor Pain
WASHINGTON. Wall Street erupted with yet another violent squall of intense selling Monday morning. That sent major averages down hard into an even lower Circle of Hell than we achieved last week. But then, surprise! The consistently bi-polar stock market averages made it back to the green zone, if only slightly. Miraculously, they remained mostly positive into Monday’s closing bell. Was the Autumn 2018 Festival of Investor Pain over at last?
That’s doubtful, actually. Even so, the sun reappeared (at least here in The Swamp) Tuesday morning. A majority of stocks opened strongly positive Tuesday morning at the opening bell, with the Dow Jones Industrials a roughly 250 point gain in short order.
But true to form, as we write today’s commentary, circa 11:15 a.m. ET, the waffling has begun once again. The return of the Festival of Investor Pain is always just around the corner in this persistently bi-polar stock market. Like Yogi says, “It ain’t over ’til it’s over.”
Current bi-polar stock market averages
Currently, the Dow (DJIA) is off from its earlier highs, but is still up half a percent. It stands (momentarily at least) at 24541.19, up about 111 points. That number, of course, likely bears little resemblance to what we’ll see at the 4 p.m. closing bell. The other major averages are essentially in the same boat as the DJIA, although the NASDAQ and the S&P 500 seem a bit more robust.
(UPDATE: We’ve already backtracked as the clock strikes noon, Tuesday. The Dow is now barely up 60 points. Buyers remain scarce. The other major averages are trying to stay in the green. UPDATE 2: The Dow is now off 52.14 points, while the S&P 500 is flatlining. The badly-damaged, tech-heavy NASDAQ, however, currently remains in the green. It’s up 22.35 points for a 0.33 percent gain as ot 1:20 p.m. ET. UPDATE 3: An explosive, televised White House meeting including President Trump, Senator Chuck Schumer and presumed new Speaker of the House Nancy Pelosi, ended acrimoniously. Both Democrats essentially refused to give an inch on the President’s border wall funding request. Trump pledged to follow through and shut down the government without some movement on this issue. As of 1:45 p.m. ET, all three major averages are tanking. The Festival of Pain is now back in the driver’s seat.)
Headline hell inspires 2018’s Festival of Investor Pain
Monday’s opening action was typical of the headline hell investors have been experiencing since the Labor Day holiday. CNBC provides some color on 2018’s continuing Festival of Pain.
“Stocks traded sharply lower on Monday in a volatile session as banks and Apple led the decline. Traders pointed to a number of reasons for the selling, including an adverse ruling in a Chinese court against Apple, a flattening yield curve and a delayed Brexit vote in the United Kingdom.
“… Apple shares fell 1.2 percent after a Chinese court granted Qualcomm an injunction against the iPhone maker. It is unclear how the injunction will impact Apple’s sales in China, however. Qualcomm says the order bans Apple iPhone imports and sales in China. Apple, meanwhile, says it only impacts sales of phones running an older operating system.
“Stocks fell to their lows of the day after UK Prime Minister Theresa May announced the delay of a key Brexit vote in the country’s parliament. Originally, it was scheduled to be held Tuesday.”
The fourth weekend of Parisian riots didn’t help the market tone at all either. That’s despite French President Emmanuel Macron’s cave on his short-lived middle-class gas tax and other alleged offers to improve the plight of French peasants. Too late. Macron is now damaged goods.
Bi-polar stock market also takes cues from a very bi-polar Eurozone
Meanwhile in Belgium, that government is in tatters. The problem arose over signing (or not signing) the latest
income redistribution global warming climate change pact in Morocco. One coalition leader – the Prime Minister – wanted to sign. His coalition partners did not. So it looks like the Belgian government will fall. The PM insists the pact will, for sure, end the use of all fossil fuels around the world. That miracle begins as soon as he signs Belgium up. It’s a miracle, just like Obama first promised in 2008.
(For a vintage political chuckle, see the YouTube video below.)
Ironically, while the Trump Administration will never get on board with this pact, the US is the only country to have improved its carbon emissions significantly over the last few years. India and China — exempt from the current pact — continue to pollute away.
Meanwhile the always hypocritical, virtue-signaling Eurozone, which grandly signs all such warmist nonsense, never lives up to its own standards.
It never occurs to these redistributionist morons that when the entire world stops burning stuff, this will trigger a New Ice Age. That event is probably creeping in right now, unassisted, even as we type up this article, primarily due to the pretty much complete disappearance of sunspots, according to a few sane climatologists.
But logic long ago ceased to have any influence on Europe’s brain dead elites. So their persistent belief in a bogus energy environment funded exclusively by the peasantry continues to work its magic in the streets of Paris and elsewhere around much of that brain-dead continent, once the very cradle of modern civilization.
More for this bi-polar stock market to ponder: Impeach Trump Mania
Finally, as if the Euro-ignoramuses aren’t enough, traders in general persist in loving President Trump’s economic policies (except for the tariffs) while supporting the drumbeat for his ouster, to be initiated forthwith in January by a Democrat-Socialist-controlled House of Representatives. Talk about bi-polar.
In reality, most US companies (except new home builders) are still showing strong earnings and strong projected earnings for Q1 and Q2 2019. But for various reasons, the newly established trend of selling on any rally continues, upsetting the apple cart for the perma-bulls. Big time. This tendency will only increase in 2019 as the Democrat-controlled media builds the left’s impeachment frenzy to a market-destabilizing climax.
Over the past 8-10 years, general stock market behavior, post Great Recession, encouraged investors to “buy the dip.” Or as ZeroHedge puts it, “BTFD.” I.e., “buy the effing dip.” But now, Mr Market has done a 180. In the current negative environment, it now seems wise to “sell the rally.”
It appears that this new rule will remain in place indefinitely, with enough occasional breaks to make investors even more nervous than they already are.
If it looks like a bear market…
In any case, stocks and underlying averages have tumbled sufficiently for at least some analysts to declare our current stock selling binge to be a genuine bear market. We pretty much agree. Despite many stocks still resisting the 20 percent decline analysts believe is the hallmark of a bear market, the current market climate sure makes most investors feel we’re in a bear market. So perhaps we are.
The tendency these days is to sell, sell, sell. That’s reflected in the astonishingly wide bid-ask spreads we’re seeing even in the trading action of major US companies. These wide spreads mean there simply aren’t enough buyers out there right now, even in the major stocks included in the DJIA. Plenty of sellers. No buyers.
After Q2 and Q3 2018 treated investors to what might have been their final burst of irrational exuberance – at least near term – Q4 thus far seems intent on erasing absolutely every gain that wasn’t booked by the last trading day of August. It’s sad. Tragic really, particularly for countless small, middle class investors and 401(k) holders who still need more bullishness to repair their investment portfolios. Just like wealthy investors did circa 2010-2012.
BTW, notice any similarity to the situation in France? Right, the elites and Deep Staters running The Swamp made sure they got their money back after the Great Recession. As for the middle-class peasants? Who cares? The 2018 Festival of Pain is only for little people.
Purchased money market funds: One way to survive The Big Bear
What to do now? This investor – hit hard this fall like everyone else – is till busy getting rid of small, hopeless positions here and there and otherwise sitting tight on other perfectly good but battered positions.
There will be some kind of entry point here, we suspect, over the next four weeks or so. So adding to our current cash stash for later deployment is not a bad idea.
Even better is the fact that in most brokerage accounts, the new class of “purchased” money market funds (as opposed to the default “bank sweeps”) is where we want to park most of that cash. Functionally, these are almost as good as the old money markets, which the Fed essentially drove brokerage firms out of offering roughly a year or two ago for what we regard as arcane reasons.
The main difference with these new products is that buys and sells of the purchased funds have a one-day settlement turnaround, so they’re not quite as instantaneous as the older money market “cash sweep” accounts customers loved. Until one of them “broke the buck.” (Say no more.)
But now, current cash sweep money generally goes into the still-low-yielding banks most brokerage firms have set up. By simply paying more attention to your accounts (and remembering that one-day settlement requirement for purchased funds), you can now get more than 2 percent on your idle cash, at least at most firms we checked recently.
Low yields are better than no yields, which are actually better than losses
Yeah, that’s nothing to write home about. But it’s far better than the asinine 0.01 percent we earned on those old, limping money markets during the dismal Obama interregnum. 2+ percent isn’t really too bad right now, particularly since that number is likely to go up a bit over time, depending on prevailing interest rates. It’s sure better than the peasant rate of 0.01 percent. And besides, we’re just parking that cash to invest in the next bull leg of this market, right? Right?
Over the next few days, we intend to crank out a few background-type articles on investing in the current lousy environment. The whole idea here is for us to assume, at least provisionally, that we’re in a bear market for the present.
Adjusting to the current Bear Market
Here’s a tried and true general rule for investing over long periods of time.
You generally make most of your money (profit) during a bull market.
That’s because the tendency of most stocks is to increase in value in a bull market.
But when you hit a bear market, it’s much, much harder to make money. Unless, of course, you’re adept at short selling. Most small investors are not.
The way you deal with a bear market by limiting your losses.
After all, if you’re in a bear market, you’re not likely to book many gains on your long positions. We’ll be looking into this strategy over the next one or two weeks and sharing our thoughts with our readers. Our current goal: to mostly avoid our current Festival of Pain. That could mean dealing with low returns for awhile. But a 1-0 final score is still a win.
— Headline image: A beleaguered investor in 2018’s bi-polar stock market. Public domain image via Pixabay.com.