WASHINGTON. The Great Trump Rally had been firing on all cylinders since the market’s last serious pounding, which occurred just after the turn of this year. But that current, magnificent bull run is clearly over, at least for now. In high-volume trading action, we watched the Dow get pulverized, the techs get eviscerated, and the entire market collapse in a nasty waterfall decline. It was ugly. It seems like an early election correction is now underway.
Behold the carnage this election correction hath already wrought:
- The Dow Jones Industrials (DJI) closed down a negative 831.83 points on the day for an awful 3.15 percent decline. That average now stands at 25,598.74 points. At least until tomorrow’s opening bell.
- The broad-based S&P 500 got an even bigger haircut, closing down a negative 94.66 points for the day for an even worse 3.29 percent decline. That average currently stands at 2,785.68.
- Worst of all, the tech-heavy NASDAQ came close to getting guillotined Wednesday, closing down a sickening 315.97 points to the negative. It currently stands at 7,422.05, a whopping 4.08 percent loss on the day.
- Finally, according to a ZeroHedge scare headline: VIX Spikes Above 20 – Highest In 6 Months, Term Structure Inverts. In other words, the VIX underscores what we already know. Things are getting very nasty on Wall Street this week.
Considering that over 4 percent loss for the Nazz alone, you have to sit up and take notice. An official market or market average correction is usually a negative 10 percent or more. So in just one day, the NASDAQ took care of nearly half that number. Worse, that average, much like everything else, has been sinking every day. I have to check, but the Nazz may already have crossed that 10 percent line over the past week.
But worst of all, trading action today was big-time heavy. In fact, it was YUGE. Poundings like this can occur at low volume, in which case they’re not very troubling as it indicates not many investors are shuffling their positions. But when you see big-time trading volume, it usually means some part of the belief system has gotten smashed. And there are usually consequences when that happens. Mostly unpleasant ones. We saw that today with a vengeance.
Need a villain? Try the tone-deaf Federal Reserve
The big villain in today’s early election correction is likely the same one we’ve confronted at least since mid-September: a needlessly aggressive Federal Reserve. To fight the inflation that arguably has yet to exist, they’ve developed a formula, a patterned response, and they’re sticking with it no matter what reality proclaims to the contrary. Their aim, at least as far as reasonably minded investors – like moi – are concerned, is to garrote the Great Trump Rally before too many middle-class investors and 401(k)s make some real money so they can retire before they’re dead.
After all, the banks and the rich guys had their fat salaries and bonuses restored quite promptly after a year or two of penance following the bottom of the Great Recession. So why is it that the little guys can’t finally step up to the plate and do the same thing, on a much more modest scale of course? It’s one of a great many cosmic questions I’ve been pondering for the last couple of years, at least. I’ll get back to this when and if I can find some kind of plausible answer.
A foolish consistency?
The Fed, apparently, developed a plot chart and a magic interest rate formula. They’re sticking to it, by God. And the Gates of Hell won’t prevail against them. The problem here is two-fold. First, there’s that big, ongoing Fed balance sheet runoff – which means the nation’s central bank is now continuously dumping tons of the debt instruments it bought over the years to keep the country liquid as the economy struggled under Obama’s non-recovery. This clearly has the affect of squeezing the money supply, which helps interest rates go up for the rest of us. Not down.
But on top of that, these egghead (mostly-) economists are jacking underlying interest rates up by a quarter of a percent every single calendar quarter. Like clockwork. Just because. It’s their version of a “Return to Normalcy.” Or maybe “Back to the Future.” But why, when the national economy is only inflating in and around the central bank’s long-held “target rate” anyway? Which, last time we looked, was an inflation rate of 2 percent annually, more or less. Which is what we have.
What about Joe Sixpack’s recovery?
Since rates were way too low when the Fed started this game, the quarter-percent hikes initially didn’t make much different to Joe Sixpack. But now, these hikes have gotten ahead of the curve and they’re needlessly starting to hurt. Note that housing starts have come almost to a standstill recently.
Look, guys, let’s cut out the interest rate hiking parties for now, and at least let middle-class Americans finish catching up. They’re still not ahead of where they were in 2008, before they all got laid off. At least let them catch up with their lives after 8-10 years of prolonged misery, give or take. Who are you guys working for, anyway? (Oh, yeah, the banks. Never mind.)
New inflation numbers are slated to show up Friday. Earnings season gets underway Friday as well with a number of important banks set to report. New info will either buck these sick markets up or make them worse. Don’t miss the next thrilling episode.
Then, there’s those ruthless, relentless, remorseless denizens of The Swamp
On other fronts, the Democrats’ constant carping, threats, and more frequent acts of violence – all attempting to influence the upcoming November elections – are making investors and voters alike quite nervous. Ditto the nasty little things that are happening elsewhere around the world. It’s getting uncomfortable around here for a lot of reasons. But the Fed is adding more fuel to a fire they don’t quite understand. Many things contribute to our developing election correction scenario.
Bottom line, though. In case any of us doubted it, investors, funds, seemingly everyone today has been busy bailing out of this market, just like they did earlier this year. Before they didn’t. As we hopefully noted yesterday, it’s high time for at least a dead cat bounce. I hope that little blip up we saw yesterday in some sectors wasn’t it. It’s time for a real dead cat bounce. At least. I’m waiting…
Another selling tsunami on the way?
Disconcertingly, we may still have another terrible election correction selling tsunami to endure before that happens, perhaps tomorrow. On a day like today, you look at how the market closes to get some clue where stocks may go next. Normally in a situation like this, we’d get a nice internal rally about 15 minutes before the closing bell. Suddenly, what some wags have called “The Plunge Protection Team” would emerge and start buying everything in sight.
Under that scenario, stocks can regain at least half their losses in the last 15 minutes of trading. Sometimes, when the buying waves come fast and furious, they can even erase a bad day’s red ink and close on the upside. That’s your clue that a big rally is almost certainly arriving tomorrow.
But instead, on this glum and scary Wednesday afternoon, we watched as the already pronounced selling from the last few days got heavier. It wasn’t until late afternoon that the Dow decline worsened further. It soon exceeded the 600 mark on the downside. But then, it quickly headed for new and more exciting bottoms of -700. And then, even more quickly, -800 and beyond. Stocks never looked back. And that’s why the Dow closed down 3.15 percent. On heavy volume. Felt strangely like 2008-2009 again. That’s all we need.
But, unless some good news “unexpectedly” shows up later tonight or early Thursday AM and influences tomorrow’s market futures, we could get at least one more serious downdraft tomorrow.
Fasten your seatbelts. It’s been a nasty ride so far this month. And this unfortunate election correction could get worse.