WASHINGTON. All three major averages took yet another sickening plunge Tuesday morning. The Dow experienced another Journey to the Center of the Earthmoment, blasting well below the minus 500 point mark at one point. As we write this, approaching 1 p.m. ET, the Dow has recovered somewhat. It’s “only” down 296 points, at least at this second. But again, as we’ve been reciting for at least a week, who knows where this, the S&P 500 and the NASDAQ will end up at today’s 4 p.m. closing bell? Will it be another sickening Wall Street crash?
There’s no way to guess the answer to these questions. It’s pretty clear now that Mr. Market is considering a full-blown correction of 10-20 percent or more before this is all over. Such a correction isn’t guaranteed. But since October began its inauspicious run of days, Mr. Market seems to be well on the way to creating such a scenario. Hence, our ongoing Wall Street crash this month.
Wall Street crash: Inspired by Election 2018 antics?
At this moment at least, two things seem to be heading traders and investors streaming for the exits. The first of these involves the nail-biting character of Election 2018. This year’s upcoming midterms were supposed to be a slam-dunk for the Schumer-Pelosi “blue wave” fans. That’s probably why so many of the left’s Soros-paid thugs have been waging an intimidation campaign against Republican politicians and supporters alike.
But these violent clowns, and their Congressional pals, virtue-signaling away, really jumped the shark when they launched an all-out, unfounded smear campaign against then-Supreme Court nominee Brett Kavanaugh. Trump, McConnell & Co. surprised everyone on this one, braving the leftist onslaught to put Kavanaugh on the nation’s highest court.
That triumph, ugly and sad though it was, got complacent Republican voters fired up again. The President, the GOP and their supporters were furious over the shameful treatment of now-Justice Kavanaugh and his incredibly abused young family. And all of a sudden, the polls – likely overweighted toward the Democrats anyway – began to show a big shift in voter sentiment.
Now we’re at the point where the punditocracy no longer asks whether the GOP will hold the Senate for two more years. They wonder how much more of a majority Republicans will end up when all the balloting is over. The current Wall Street crash environment is a risk, however, for other races. Headline risk, of course.
As for those 2018 House races…
Contrariwise, the House has been a much greater slog. Mass quantities of veteran GOP Reps – mostly RINOs and #NeverTrumpers, interestingly enough – decided not to run for re-election this fall. That’s usually a sign that their internal polling showed they’d be handily defeated. And so, rather than face reality and join the Trump Parade, they bailed on the party and its two years of lawmaking and repealing success, and abandoned their seats to an open contest.
That astonishing mass exit gave a phalanx of massively Soros-funded, hard-left Democrat newcomers the green light to go for those open seats. The objective for the Democrats, as always, was to take back complete control of the House, the better to destroy the next two years of the Trump presidency. And it looked like it would be a cakewalk, too, with tens of millions of Steyer and Soros $$$ cascading the Democrats’ way.
But then the Kavanaugh Katastrophe happened. Over the past 3 weeks or so, a fired-up Republican base re-launched their crusade. President Trump, indefatigable as always, has been doing mass rallies across the country nearly every night. And suddenly, the tide could be turning that now-evaporating “blue wave” into a red tsunami.
Actually, this may be a bit optimistic. The Dems still appear to have a slight edge. But if they do take the House, now, their majority would likely be as slim as it could be. However, ditto, too, the Republicans. But at least they could seal the fate of the Trump-Russia nonsense for at least the next two years.
What do elections have to do with stocks?
But, you say, what the hell does all this have to do with stocks? Quite a lot, actually. Constant headline risk is, well, one important element of over all risk. But how about looking at things according to a dude who seriously knows? We’re talking about Larry Kudlow, currently President Trump’s U.S. National Economic Council Director. CNBC summarized a recent press briefing with Kudlow that touched on that Election 2018 issue.
“The recent sell-off in stocks reflects fear that Congress will be remade in the upcoming election and pro-growth policies will fall by the wayside, according to White House advisor Larry Kudlow.
“Kudlow, speaking to reporters outside the White House on Tuesday, blamed the market decline on mid-term elections. ‘I think the stock market is worried that Congress will change and will overturn these pro-growth policies,’ he said. The ‘correction has to overcome the uncertainty about this election.’”
That’s about right. Mr. Market, and investors in general, really hate it when the investing environment begins to shift. Uncertainty can put a very rapid end to any bull market, leading to an almost predictible Wall Street crash. And uncertainty seems to be doing that right now, given October’s already crash-prone daily action.
Not helping the market today was the poor action in the shares of industrial giants Caterpillar (symbol: CAT) and 3M (MMM). Both reported poor earnings today and both got clobbered, accounting for a big chunk of the Dow’s red ink.
About those interest rate worries
Which led to Kudlow’s and CNBC’s secondary reason for October’s lousy crash-prone performance.
“[The] October market drop seemed to be more about fears of slowing global growth and rising interest rates than anything to do with the election….
“The Fed has moved on rates after years of historic lows to stay ahead of inflation. Unemployment is at decades-old lows and the economy is growing.”
Yeah, but traders and investors no longer trust the Fed not to over-do it when it comes to those interest rate hikes. Already, the hikes have effectively killed off new home sales. That has a ripple effect on other sectors as well. Investors don’t like what they see down the road if the Fed doesn’t slow down that interest rate juggernaut for a while. This is what makes many investors sell off stocks until they can get a good night’s sleep for a change.
More interest in those interest rates
One of our favorite sites, Tim McPartland’s Innovative Income Investor, pinches in a bit more on that interest rate issue.
“Interest rates are moving a bit lower – the 10 year is in the 3.15% range, but it is moving grudgingly – no wholesale movement.
“While no one can really pinpoint exact reasons for movements in stocks and bonds on a day to day basis, I believe that higher interest rates are the culprit behind stock weakness.”
Personally, I think it’s both items A and B on the speculative menu. Let’s see what happens after today’s latest market debacle, this Tuesday edition of the October 2018 Wall Street crash. Things have been improving somewhat since I began punching this article out. But sellers have a way of ganging up on a week market near that closing bell. So for us, it’s watchful waiting for now.
— Headline image: Cliff diving in Bruce Peninsula National Park on Lake Huron, Ontario, Canada.
(Flickr, CC 2.0. Photo credit: Derek Tsang)