Trump-China tariff escalation in the air Monday. Wall Street lays an egg
WASHINGTON. The Trump-China tariff escalation contest is back in the financial headlines. After a mediocre-to-negative trading session Monday, all three major market averages took a final-hour shellacking to close firmly on the downside.
Trump-China tariff escalation possibility jolts stocks on Monday
In addition to last week’s sense of market malaise, particularly in tech, news that President Trump would announce his latest action in the administration’s growing trade war with China’s communist government sent averages reeling today. However, while still in red ink territory, averages bounced off their lows at the closing bell.
At least one commentator had a reasoned response to this afternoon’s likely tariff announcement.
“‘If the imposition of those tariffs results in the cancellation of trade talks and Chinese restrictions on ex-ports, that’s a market negative as it increases trade tensions,’ said Tom Essaye, founder of The Sevens Report, in a note.
“‘One potential scenario is the U.S. announces the tariffs, but delays their implementation until after the talks. If that occurs, then the situation shouldn’t become a near term headwind. Regardless, it appears this trade drama between the U.S. and China is coming to a head in the coming weeks,’ Essaye said.”
(As of 4:30 p.m. ET on Monday, no tariff announcement was yet forthcoming from the White House. We’ll post an update here if and when the announcement happens.)
Gloomy, rainy aftermath of ex-Hurricane Florence moves into The Swamp
As if to echo the current Trump-China tariff malaise, weather on America’s east coast provided a melancholy backdrop the doleful mood on Wall Street.
Sitting here in northern Virginia at my home trading desk on this very Gloomy Monday, I’m beginning to see the rainy early innings of now-tropical depression Florence materialize about a day after the weakened but still potent storm was supposed to arrive. Florence has weakened considerably since the storm’s massive rains inundated coastal North and South Carolina this weekend.
Up here, we’re hoping for considerably less precipitation, as we’ve already had quite enough of that this summer. My drowned tomato plants gave up the ghost weeks ago.
But that said, we’re also worried about the slow motion drowning our portfolios have been enduring recently.
Techs remained weak this Monday afternoon, and nothing else looks very promising, either. We’ve continued to diversify our portfolios since earlier this year, moving more toward representative ETFs than actual stocks in order to dodge at least some of Mr. Market’s extreme 2018 nuttiness. But on a day like this Blue, Gloomy Monday, pretty much every sector is trying to tank, with tech really taking it in the ear.
Those rumblings about additional China trade tariffs don’t help. Neither does the #Resistance Carnival of Misery disgracefully playing out on Capitol Hill. The increased likelihood of another incoming Fed rate hike don’t help either. In fact, just in time for the market’s annual, negative September Song, it’s looking like #BullMarketResistance has been building on Wall Street.
To Bork? Or to Thomas? Destroy, or just smear?
Speaking of #Resistance, we now get to guess how the current Kavanaugh Supreme Court nomination plays out in the Senate. Will we get a final, conclusive Borking of this fine jurist by an increasingly erratic and insane Democrat Party? Or will we end up with another new, Republican-appointed justice whose integrity is unfairly tarred forever by a fresh version of the Clarence Thomas Effect? Clearly, we still don’t have enough adults running things here in The Swamp. It’s just depressing, and isn’t helping market psychology. Stocks already have enough problems each September without a political travesty like this one.
Pivoting back to Mr. Market himself, one of our favorite market indicators, the McClellan Oscillator, dipped sharply as we moved through early September, Late last week, it attempted a recovery. But today, it looks like the oscillator gods are giving up the ship once again.
A confusing McClellan Oscillator
National and international politicking aside, maybe there’s an overriding technical reason for the market’s nasty tone. Tom Bowley has a quite-plausible idea, via his Trading Places blog.
“We are entering one of the worst historical periods of the year. September is known as a bearish month for U.S. equities, but the second half of the month is much worse than the first half. Here are the annualized returns for the S&P 500 since 1950 for each of the two periods indicated:
September 1-16: +10.63%
September 17-30: -23.13%”
We’ve worried about this in recent columns here, and Bowley’s numbers seem to back up our fears. We’ll just have to wait and see how hard stocks get hit here, particularly if the threatened news on escalating Trump-China tariff actions actually materializes.
We’d just as soon see stocks regain some of their previous irrational exuberance. But you can’t always get what you want.
Allergan shares in face-plant mode in Monday trading action
Portfolio-wise, our too-extensive holdings of Allergan (trading symbol: AGN) have been on a recovery-tear since mid-spring. When we started the year, we were horrendously down in our largest holding, to the tune of a negative 30 percent. That’s probably the biggest hit our portfolios have ever taken.
Most if not all this slaughteration was due to the Restasis brouhaha that hit the big, Dublin-based drug company roughly a year ago. The company quickly adopted a novel defense of its soon-to-expire patents on this product. But roughly a year ago, Allergan suddenly and definitively lost its patent battle against generic competitors looking to market their own, cheaper editions of the company’s pioneering dry-eye treatment. The resulting waterfall decline in the company’s shares left very little time to exit.
Yet by early September, AGN shares had strengthened considerably. As of just last week, we’d regained approximately 25 percent of that 30 percent loss, coming within 5 points of breakeven. That bullish move began to take place in mid-to-late February 2018.
But alas, all good things must come to an end, at least temporarily. Some evil algorithm, hedge fund or individual traders began to dump AGN shares last week. That beating acted as if it were on steroids Monday, with the stock closing down nearly $4.00 per share at $184.39 per share: off nearly 2 percent by the closing bell.
Ironically, two brokerage research departments upped their ratings for the company today even as Allergan shares tanked. Most current targets estimate AGN will trade at between $216-$263 per share within 12 months or less. Go figure. We’re holding, but will apply band-aids to our current position.
Defensive trading in ETFs
Neither we nor Mr. Market can fight the confluence of Trump-China tariff malaise, impending Fed rate increases and the Senate’s version of Kavanaugh kabuki theater. We’re selling off a few profitable ETF shares here and there, mostly of the commission-free variety in our trading accounts. If we’re going to tank for the rest of September, perhaps it’s best to take some profits now. Later, we can buy into the same shares again at a lower price when investors are feeling a bit better. Say, in October.
We’re often tempted on a day like today, to take some kind of defensive position in one or two short ETFs. These include our old stand-bys, SH (a short S&P 500 ETF) and / or SH (the leveraged, double-short ETF). The idea is to put on some kind of hedge against a market decline so we can fight back against the decline without dumping shares of actual stocks we’d rather hold. We did take an initial position in SH just before today’s market close.
Bottom line. We’re defensively trimming our portfolios by raking in some modest capital gains. We continue to hold most of our positions. Fingers crossed that current market wobbliness doesn’t turn into the Democrats’ long wished-for market decline. Such a decline might poison investor attitudes just in time to turn the House blue in November. Which, of course, is what Democrats want.
These amoral, power-mad idiots don’t care about stocks, investors, or your average working stiff. It’s all about maintaining the stranglehold they’ve had on the Federal government pretty much since the presidency of Franklin D. Roosevelt.
— Headline image: The bears are having fun on Wall Street again, just like they did in this 1907 cartoon.
(Public domain, Library of Congress, via Wikipedia)