WASHINGTON – It’s Wednesday afternoon, stock fans. And as we’ve feared, Mr Market is getting nuttier and nuttier. Stocks got off to a bad start Tuesday. But then began to recover later in the day as Fed Chair Jerome Powell promised to launch QE4 very soon. Except, he said, it’s not really QE4. But, just as the market moved back into the green, the Trump administration decided to whack the upcoming US-China trade talks with seriously negative trade war signals.
Expanding the China Tech blacklist: Fresh trade war signals
They did this by expanding the US tech product blacklist and banning visas for certain Chinese bigwigs, according to CNBC. These bigwigs have been the driving force in establishing Muslim concentration camps in the country’s wild, wild West Islamic region.
“The U.S. expanded its trade blacklist to include some of China’s top artificial intelligence firms on Monday, punishing Beijing for its treatment of predominantly Muslim ethnic minorities. China’s foreign ministry said to ‘stay tuned’ for retaliation following the blacklist expansion. Also weighing on stocks was a statement by the State Department saying that the U.S. would impose a visa ban on Chinese officials linked to the Muslim abuses.”
Hey, I thought “stay tuned” was my line!
The Fed: So when is QE4 not really QE4?
But first things first. Let’s get back to the Fed, which appears, finally, to coming around to President Trump’s point of view. A year late. But then, what else can you expect from a drag-ass Federal government that can only move these days on items higher on the national interest? Like deposing a duly elected president because they didn’t like who won Election 2016.
Powell-speak and Washingtonspeak: One and the same
“The Federal Reserve will soon start growing its balance sheet again, a response in part to the jolt to overnight lending markets in September, Chairman Jerome Powell said Tuesday.
“How the Fed will go about expanding the securities it holds will be explained in the coming days, though Treasury bill purchases will be involved, the central bank chief said during a speech in Denver, though “Powell stressed the approach shouldn’t be confused with the quantitative easing done during and after the financial crisis.
“‘This is not QE. In no sense is this QE,’ he said in a question and answer session after the speech.
“On monetary policy more broadly, Powell stuck to his recent script: He and his fellow policymakers view the economy as being strong but susceptible to shocks, particularly from a global slowdown, trade and geopolitics like a potentially messy Brexit. He said the Fed stands committed to supporting the recovery but is data dependent and not on a preset course of cutting rates.
“The Fed has reduced its benchmark rate twice in 2019 and is expected to approve a third cut late this month.
“Stocks pared some of their losses as Powell spoke while short-term Treasury yields hit their lows of the day.”
Wall Street’s brief QE4 Happy Meal
Yea, verily, markets reversed course and began to rejoice. Investors were thrilled to see QE4 on the near-horizon, even though Powell said it wasn’t really QE4. (Which it is, because FedSpeak.)
But all the post-Powell QE4 happy dancing ceased just after the White House trade war signals ran up the flagpole. This,of course — along with the NBA — pissed the Chi-coms off. That logically led to more threats from Beijing. Markets had begun to feel a bit of optimism on that front earlier in the day and after Powell’s announcement. But suddenly, all three major averages took nasty, though not fatal nose-dives. The Dow dropped over one percent. Meanwhile the S&P 500 and the NASDAQ lost about a half-a-percentage more. All moves came amdist the roller coaster action initiated earlier by all that QE4 excitement and anticipation.
But, as the Tylers of ZeroHedge point out, Wall Street’s short outburst of happiness found optimists diving for cover.
Trade war signals go to DEFCON 1
Minutes after Powell delivers “Not QE4”, President Trump appears to have taken the trade war to DEFCON 1 as headlines drop that the US is imposing visa bans on Chinese people linked to the human rights buses in Xinjiang.
“Stocks immediately dumped all the ‘Not QE’ gains and more and gold spiked…
“Erasing all the earlier moves initiated by Powell’s [fake QE4] speech…
“As @Hipster_Trader joked “Stocks turned red. Better announce QE5.”
Yeah, you can see where we discovered the DEFCON 1 ref we borrowed for our headline to address the administration’s barrage of new trade war signals. But that’s the sort of stuff the Tylers tend to do. But in the case of Mr Market, the Administration’s announcement certainly felt like DEFCON 1, given the trade and tariff optimism bulls had pushed earlier on Monday. With little effect.
Turning the calendar page back to happiness
Now, it’s Wednesday, and all seems forgiven. For the moment.
As we write this column, around 12:40 p.m. today, the Dow and the S&P 500 are both up close to one percent. Meanwhile, the much put-upon NASDAQ, laden as it is with currently unpopular tech issues, is experiencing a 1+ percent bounce. Are the tech bulls back? Who knows? Maybe it’s just that virtual QE4 promise. Whatever.
But if the US-China trade talks fail to produce at least some positive results, look for the tech decline to continue.
Impeachment, tech, China, and God knows what else continue to keep the US stock market warning level pinned between Code Orange and Code Red. Continuous headline risk. So caution is still warranted for small traders and investors.
On the other hand, with major discount brokerages cutting their commissions to zero, trading stocks in any lot size no longer carries a proportional commission penalty. That could mean that some adventurous millennials (rumor has it there are a few of them) might begin venturing into the (sometimes) Wonderful World of Stocks. Who knows how this will affect Mr Market. We’ll just have to wait and see.
— Headline image: Two typical outcomes for Wile E. Coyote. And Mr Market, too.
(Satirical composite employs YouTube screen captures of Warner Bros cartoon character. Fair use.)