WASHINGTON. President Trump has spent the better part of a year denouncing the US Federal Reserve Bank’s relentless interest rate hike regime in the face of an effectively zero percent inflation rate. At the conclusion of 2018’s Q4 stock market massacre, novocaine-brained Fed Chair Jerome Powell finally awoke from his haze, halting last year’s robo-rate hiking habit. This week, he affirmed the Fed done with it. At least for 2019. More or less. Score one for Trump vs Fed. His regular denunciations of these dunces have been spot on.
Unfortunately, after a post-Fed meeting announcement Wednesday, markets tanked, primarily driven down by the financials. Thursday’s dramatic rally reversed the downward moves of all three averages, although the financials (i.e., banks, insurance companies and related businesses) continued plummet. Today, markets reversed once again in dramatic fashion, as financials continued their sickening slide, taking most other sectors down with them.
Mr Market gets hammered on Friday
As we write this just after the noon hour on Friday, all three averages continue to get savagely hammered. The Dow Jones 30 Industrials are down over 400 points and trying to sink further, currently having lost nearly 1.6 percent on the day.
Boeing gets more bad 737 MAX news
Indonesia’s Garuda airline announced termination of its $6 billion order to purchase 49 Boeing 737 MAX jets. That decision was clearly influenced by a pair of recent, fatal crashes involving that jetliner, didn’t help the Dow industrials one bit. Boeing (trading symbol: BA), a major component of this cap-weighted index, is currently down approximately 8 points on this latest news, an over 2 percentage point plunge on the day thus far.
Meanwhile, the broad-based S&P 500 is off 43.65 points on the day thus far, a loss approaching 1.6 percent, just like the Dow. And the tech-heavy NASDAQ is getting pummeled even worse, off roughly 2 percent and dropping some 155 points as we continue to pound the keyboard here.
The Fed and Nike pile on
CNBC offers some additional reasons for today’s abrupt market swan dive.
“Stocks dropped on Friday as jitters over the global economy were sparked by dreadful manufacturing data out of Europe and the Federal Reserve’s cautious outlook on the U.S. economy.
“The Dow Jones Industrial Average traded 360 points as Nike and Boeing shares underperformed. The S&P 500 fell 1.5 percent, led by declines in the energy and financials sectors, as the broad index headed for its worst day since Jan. 3. The Composite declined 1.8 percent.
“‘There’s a host of worries out there and those worries continue to mount,’ said Peter Cardillo, chief market economist at Spartan Capital Securities. ‘The fear of recession is increasing.’
“‘As a result, we have a market that is rethinking some of the optimism that was priced in.’
Sure looks that way, doesn’t it? Maybe all that Colin Kaepernick virtue-signaling finally caught up with them.
More on Nike and Europe
CNBC notes Nike’s apparent culpability in today’s Dow Jones shellacking.
“Nike [NKE] shares also pressured stocks. The athletic apparel company’s stock fell 5.3 percent on the back of weak quarterly sales growth in North America.”
But things get even worse over in Europe.
“IHS Markit said Friday that manufacturing activity in Germany dropped to its lowest level in more than six years in March. In France, manufacturing and services slowed down to their lowest levels in three months and two months, respectively. For the euro zone as a whole, manufacturing fell to its lowest level since April 2013.”
Earth to AOC: Guess that’s what Euro-Socialism does for you.
Trump vs Fed: Don’t gimme no bad news
Meanwhile, back at ZeroHedge, perma-bear Jim Grant was prowling and growling like Smokey about the idiotic burden the Fed hath wrought on the Trump Economy and the Great Trump Rally, although not in those terms.
“Critically, as Jim Grant noted recently, the spread between the 10-year and three-month yields is an important indicator, James Bianco, president and eponym of Bianco Research LLC notes today. On six occasions over the past 50 years when the three-month yield exceeded that of the 10-year, economic recession invariably followed, commencing an average of 311 days after the initial signal.
“Bianco concludes that the market, like Trump, believes that the current Funds rate isn’t low enough.”
Here’s a snapshot of this afternoon’s bond rates via CNBC that illustrates Grant’s point. (Note: These figures will fluctuate somewhat into Friday’s bond market close.)
Another Deep State conspiracy?
We can’t help but wonder, as we have previously, whether the Federal Reserve really intended, at least in part, for its irrationally exuberant and needless interest to cause a recession during next year’s presidential election campaign. Another “insurance policy,” if you will, to ensure that Trump leaves office next November. That way a Democrat president could claim “victory” over the economy, then use that “victory” to justify big, fat, socialist-style tax increases on “the wealthy.” Which, as always, the middle class ends up paying.
Follow the money. And the charts
Erin Swenlin, who co-produces the DecisionPoint forum over at subscription chart service Stockcharts.com, tells us her own technical tea leaves are telling her we’re in for at least a short-term bout of negative action on Wall Street. (This article is free.)
“The Price Momentum Oscillator (PMO) has topped underneath the signal line, something I consider especially bearish in the short term. Our short-term indicators have presented another ‘attention flag’ divergence, which could be pointing to a more lasting decline. Today, the Dollar broke down dramatically on the heels of a PMO SELL signal. The DecisionPoint Scoreboards below show us that both the Dow and the SPX are lagging in terms of the short-term PMO signals and, with a decline likely to continue, those SELL signals will remain intact.”
The McClellan Oscillator is also giving us a dubious signal. Hovering around flatline (zero point), the oscillator doesn’t seem to know whether we’re dealing with an overbought or oversold market.
Unfavorable seasonality in play?
Bottom line: Technical investors regard late-March as a period of “unfavorable seasonality.”
That means stocks can be weak and behave rather badly at this time nearly every year. But no one really knows if we face another bad quarter this spring (Q2 2019). Or if it might exceed the bad patch we faced during Q4 2018.
The damage the Fed caused to the economy in 2018 will likely have a lasting, negative effect. And just when the middle-class was recovering, too. Imagine that!
Good news on the housing front
Fortunately, it’s not all gloom and doom. This week’s mess and the Fed’s general screw-up have caused some potentially good news, again noted by ZeroHedge.
“Existing home sales were the only segment to buck the rebound trend in January but analysts expected them to play catch up in February as mortgage rates continued to tumble.
“And just as we previewed, existing home sales soared in February (up 11.8% MoM – most since 2015 – to 5.51mm) their highest SAAR since March 2018.
“Home purchases advanced in three of four regions, led by a 16 percent gain in the West. The Northeast was unchanged.”
Apparently, the current drop in relevant interest rates reignited buying interest in the real estate sector. This alone can help re-stimulate what remains of the Great Trump Rally. If it can, we might manage to evade that election year recession the Democrats so badly need. In order to evict Trump in 2020. Another point for the Prez in Trump vs Fed?
Trump vs Fed: There may be hope for the future
And to wrap up latest “fall” in the ongoing Trump vs Fed grudge match. For this, we go back to CNBC. That network reports that the composition of the Fed could change. Soon. And perhaps radically.
“President Donald Trump is set to offer a position on the Federal Reserve to economic commentator and former campaign advisor Stephen Moore, CNBC has learned
“The president is waiting for Moore to get through the nominee clearance process.
‘”I could just say that I’ve been talking to some people about it, but I’ve not been formally offered a position,’ Moore told CNBC. ‘If I were offered it, I would do it.’”
“Moore, 59, currently is a visiting fellow at the Heritage Foundation and has been a Trump supporter since the 2016 election. In October 2018, he released the book with economist Art Laffer, ‘Trumponomics: Inside the America First Plan to Revive Our Economy.’
“Moore also has been a frequent Fed critic, saying the central bank’s policies of keeping short-term rates near zero and buying bonds to stimulate growth were misguided and would spur inflation.
‘”If I were to do it I would certainly want to try to influence the Fed to a stable dollar and pro-growth monetary policy,’ he told CNBC.”
… and the return of Herman Cain?
Yet another interesting surprise follows this news.
“Reports had circulated in late-January that Trump was considering businessman and former presidential candidate Herman Cain for a Fed governorship. Cain has previously served as chairman of the Kansas City Fed.
“There currently are two governorship vacancies on the seven-member board.”
Could President Trump be going for a Trump vs Fed two-fer? Stay tuned.
— Headline image: ACME Investing Company. Is there a doctor in the house for my stock portfolio?
(Satirical imaged based on Warner Brothers cartoon character Wile E. Coyote, fair use, satire.)