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Fed foul-up, China Syndrome slit Wall Street’s jugular in Friday market rout

Written By | Aug 2, 2019
Fed foul-up, China Syndrome

A 1937 scene from Grand Guignol. This image from the National Library of France (BnF) is a reproduction by scanning of a bidimensional work that is now in the public domain. Original transformed into a duotone image by the author.

WASHINGTON.  The US stock market was gobsmacked late Wednesday afternoon by Fed Chair Jerome Powell’s tone-deaf post rate-cut comments. Powell subsequently transformed a developing rally into a swift and stunning market crash. Markets staged a massive comeback rally Thursday. That is, until President Trump said he’d impose a 10 percent tariff on all remaining un-tariffed Chinese goods on September 1. The bad taste from the Fed foul-up, and the latest act in the ongoing China Syndrome, flipped Thursday’s rally 180°. Stocks crashed again.

Read more from CDN on Wall Street’s very bad week here and here.

The carnage continues Friday. As of the noon hour, we find the Dow currently off 270 points for a roughly 1 percent loss. The S&P 500, off 32.5 is a bit worse, losing 1.08 percent. And the tech-heavy NASDAQ, full of stocks highly dependent on China for components and sales, is getting crushed, down nearly 2 percent and losing around 145 points at the moment. Things will fluctuate today, but we suspect they won’t get much better. Economic risk has joined with headline risk to mangle investor confidence.

Another Fed foul-up sends Wall Street bulls running for cover

It’s been quite awhile since we’ve seen such vicious, hideous market action and reaction. In just 3 trading days, more or less. Early this week, Mr Market was tentative at best, awaiting the Federal Reserve’s hoped-for interest rate cut. And by gosh, that’s what we got Wednesday afternoon, a 0.25 percent snip. Not as good for traders as 0.50 percent, but okay.

But then, Fed Chair Jerome Powell inserted foot in mouth later in the afternoon in his latest Fed foul-up. He indicated Wednesday’s cut might be the only one this year. Stocks crashed. Hard.

President Trump stirs up the China Syndrome with new tariff promise

Thursday was a new day. Stocks quickly rallied back from Wednesday’s trough, only to get knifed by word from President Trump. The President announced that, for sure, September 1 would be the day he’d slap a 10 percent tariff on the rest of Chinese exports not already tariffed.

China Syndrome alert! Within what seemed like seconds, Thursday’s 350-point rally morphed into a horrendous rout.

This tag team of bad news continues to hack at Wall Street’s jugular today as the latest Fed foul-up and the continuously festering, trade-focused China Syndrome taking another heavy toll on stocks.

Perhaps the late summer market swoon we’ve been fearing for weeks is finally upon us. We’ll likely find out over the next few trading days.

McClellan Oscillator tells a worrisome short term tale

A pair of classic charts and chart patterns find stocks already stumbling in to what could prove a very dark tunnel.

First, check out our trusty McClellan Oscillator (symbol: $NYMOT for the non-adjusted version). This indicator has lately bounced above and below the zero line in a seemingly random fashion. Not it has turned sharply down, as you can see in the chart that follows. This chart was compiled as of COB Thursday. You can bet that its downward trajectory will look a lot sharper and nastier after the market closes today.

Fed foul-up, China Syndrome

Standard McClellan Oscillator turning bearish, COB -8/01/19. Chart courtesy, highlighted by this columnist.

A spiking VIX adds to a late-summer Wall of Worry

Long wandering about in its worry-free zone, the VIX ($VIX) turned up sharply this week. A widely followed measure of stock volatility – i.e., periods of sharp movements, often to the negative – this upward move in the VIX immediately raised alarm bells. But check out the COB Thursday VIX chart below. Note how the latest candlestick chart has skyrocketed upward to around +21.  +16 on this chart alarms most technical investors and analysts. A +21 spike gives nervous investors a stroke.

Fed foul-up, China Syndrome

VIX index, COB 08/01/2019. Volatility measure has spiked sharply, indicating rough times ahead. Chart via, highlighted by this columnist.

Another time not to be fully invested?

I worried about this possibility for at least a few weeks. And once again, I should have lightened up the portfolios a bit in anticipation of a sharp negative mood. I didn’t figure the Chinese would cooperate with the Trump administration in any way, shape or form. They, like the Democrats, the media and everyone else, want the US to get a new president who’ll take trade policy back to the limp-wristed approach of the previous two administrations. That would certainly be a big help in firmly establishing the stated Chi-com goal of complete world domination by 2025. People should be more worried about this nasty China Syndrome reboot and less worried about President Trump.

On the other hand, I thought the Fed – and Powell in particular – would be a bit savvier about their 2018 wrong-way turn on interest rates, adding some soothing, promising verbiage when explaining their 0.25 percent rate cut. But no. True to form, Powell quickly negated the positive effect of Wednesday’s rate cut by essentially telling investors, “Don’t look for another rate cut anytime soon.”

In one way, it’s probably Powell’s Washingtonspeak revenge on President Trump for his efforts to jawbone an overly aggressive Fed into taking a look at reality before it’s too late. Such juvenile reactions to the tiniest things in official Washington show you just how tone-deaf and blind our elitist Masters of the Universe have become in recent years.

The Swamp gets curiouser and curiouser. Becaue, Trump?

One wonders if Powell and the Fed are trying to generate a recession in 2020, the better to overthrow Trump at the ballot box. That’s an endeavor that the Chinese are certainly interested in helping, and that the average Democrat would wholly endorse. We can see why China want to reverse Trump’s current economic successes.

But why would the Fed and the Democrats would rather see Americans plunged back into the dark ages than “endure” another 4-year White House tour-of-duty for Donald Trump? Oh, you know the answer. He’s standing in the way of the pro-socialist, pro-Deep State and pro-globalist endgame. The drive toward what would amount to a New Feudalism. Yes, a medieval horror rerun engineered by the world’s wealthy elites. And enforced by their bought-and-paid-for politicians and “media” allies.

Hope is never lost, of course. Just as long as Trump can maintain enough enthusiasm to beat all these clowns. They remain remarkably un-unified at the moment. But a nasty recession would revive their chances. Worse, it could also turn more than this stock market upside down. Which another Fed foul-up might cause. Perhaps we’re viewing a teaser-trailer this week for what the opening act of that movie might look like. #

– Headline image: A 1937 scene from Grand Guignol. This image from the National Library of France (BnF) is a reproduction by scanning of a bidimensional work that is now in the public domain. Original transformed into a duotone image by the author.


Terry Ponick

Biographical Note: Dateline Award-winning music and theater critic for The Connection Newspapers and the Reston-Fairfax Times, Terry was the music critic for the Washington Times print edition (1994-2010) and online Communities (2010-2014). Since 2014, he has been the Senior Business and Entertainment Editor for Communities Digital News (CDN). A former stockbroker and a writer and editor with many interests, he served as editor under contract from the White House Office of Science and Technology Policy (OSTP) and continues to write on science and business topics. He is a graduate of Georgetown University (BA, MA) and the University of South Carolina where he was awarded a Ph.D. in English and American Literature and co-founded one of the earliest Writing Labs in the country. Twitter: @terryp17