WASHINGTON –Monday’s stock market thrashing picked up where it left off at Tuesday morning’s NYSE opening bell on Wall Street. As we write this morning’s commentary at around 11:00 a.m. ET, the Dow Jones Industrials have been bleeding red ink ± 300 points or thereabouts, adding another 1+ percent decline to yesterday’s similar drubbing. As the Dow tanks, other major averages are doing just as badly. So the current Wall Street Sellathon continues, putting markets under continuing heavy pressure.
Tuesday’s ADP employment torpedo
Today’s edition of this ongoing Wall Street Sellathon got kicked off by ADP September employment estimates that, while not negative, were less than Wall Street analysts wanted, as the Tylers observe over at ZeroHedge. (Bold and itals as usual by ZH.)
“After May’s collapse [in employment numbers], ADP employment gains have rebounded notably but were expected to slow once again in September (which makes some sense given the collapse in ISM/PMI employment indices).
“But things were considerably worse – not only did September’s data miss (+135k vs +145k exp) but Augusts’s big jump of 195k was revised drastically lower to just 157k.
“‘The job market has shown signs of a slowdown,’ said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute.
“‘The average monthly job growth for the past three months is 145,000, down from 214,000 for the same time period last year.’”
Manufacturing numbers and seriously discounted trading commissions
Monday’s bearish move was ignited by what financial media gleefully reported as “the weakest US manufacturing number in 10 years” for the month just ended. (Gleefully, because Trump.)
Not helping, as we duly noted in yesterday’s commentary, was Charles Schwab’s (trading symbol: SCHW) announcement that it was slashing most trading commissions to a big, fat zero on October 7. That had a big ripple effect on its discount brokerage competitors, most notably TD Ameritrade (AMTD). AMTD lost over 20 percent on the day after that announcement. Unsurprisingly, the company announced this morning that it, too, would join Schwab in the zero-sum game. E*Trade Financial (ETFC) endured a similar drubbing, and will likely join Schwab and TD Ameritrade in their brave new world of no commissions. (Full disclosure: this columnist’s accounts are with Schwab.)
The turmoil in the discount brokerage business caused a domino effect among financial issues, including Dow stocks, most major and regional banks and even some mortgage REITs. Energy prices were off again, so down went the universe of energy producers.
And finally, what didn’t get hit succumbed to the impeachment mania that House Democrats and their cable news lackeys are promoting 24/7. None of this helps the Dow very much.
The impeachment parade doesn’t help stem the tide of this Wall Street Sellathon
Since, at least at this juncture, the current Senate is highly unlikely to convict President Trump if the impeachment charade gets that far, one wonders if this isn’t a ploy by the left to help scuttle next week’s China trade negotiations and scare the market into a full-blown 2020 recession. That likely being the only way that the Deep State could get that troublesome prince out of the White House. Nothing else has worked. Are we playing 4-D chess now? Or has the game evolved to 5-D?
Clearly, any bullish hints that fleetingly appeared on the trading radar last month look like head-fakes right now. Even usually bullish technical analyst Greg Schnell, writing in the “free zone” at Stockcharts.com, is getting nervous about Mr Market’s current highly fickle nature.
“[W]ith the banks rolling over and the indexes looking a lot more tentative, this market is looking frail. The recent stall at the highs for the indexes was worrisome. We do have one major catalyst next week, which is the possibility of a trade deal. If Chinese negotiators are going to fly over to Washington to meet, it seems like a long way to go to say they are still miles apart after sending deputy negotiators last week. My charts are breaking down, but I don’t want to be too bearish with such a potentially important inflection point next week. In my various publications, I have been mentioning that this market is getting dicey quickly. That was a complete flip from three weeks ago where I was very bullish. When the data changes, I’ll change. I’d rather be going with the trend.”
For bulls, the trend is not your friend
Going with the trend? Me, too, I hope. But right now, if you still incline toward bullishness, the trend is not your friend. Whether you’re following the Dow or any other average. Today’s continuing Wall Street Sellathon offers ample evidence of that inconvenient truth. Monday’s jolt in the $VIX volatility index confirms this, as we can see in the chart below.
Ditto the McClellan Oscillator, which, after a nice peak late in the 3rd quarter, has turned around sharply, heading back to one of the lower pits of Hell.
Both charts courtesy of Stockcharts.com, via its free homepage.
Recession fears: BS, or the real deal?
Speaking of recession fears, we noticed some interesting observations over at Real Money. (The site is temporarily free in a promotion this week.) In an article today, the much-maligned Jim Cramer seems a lonely voice of reason on this bizarre Wall Street Tuesday. Even as the Wall Street Sellathon and the Washington, D.C. Impeach-athon continue today unabated, Cramer offers an interesting perspective.
“I think the single biggest prop behind the recession thesis is the president’s trade policies. By limiting imports from China, that gigantic economy is faltering and taking the rest of its trading partners with it, especially Europe. That, plus worries about Brexit and a lack of fiscal stimulus out of Germany, are contributing to a worldwide slowdown, one that we are no longer immune from.”
Jim Cramer offers contrarian advice. Cautiously.
This ties in nicely with my “let’s cause a recession to defeat Trump” thesis. But Cramer goes deeper.
“[The worldwide slowdown idea is] a decent thesis, one that would make sense, if we were a manufacturing export-driven economy. We aren’t. We are a service-driven economy – two-thirds of our commerce is non-industrial domestic. Much of our industrial base was decimated by the very country that we are now tugging against, China.
“Every time I sit down to divine what we still make that is exported I come back to the same thing over and over again: airplanes and autos. It’s intriguing to me that the biggest export we make, the Boeing 737 MAX, isn’t going past the parking lot. At the same time General Motors (GM) is on strike. To ignore those two variables is to create an air of panic that’s unwarranted. The number is exaggerated because of these two extraneous factors, especially Boeing (BA) .
“Therefore, I want to keep this manufacturing index in perspective: we are not going back to a 2009 economy, which was the worst since the Great Depression. I don’t think our exports can take us down like that. It’s too small to do that kind of damage.”
Yes, maybe we should pay more attention to outliers like Boeing and GM
Those last two paragraphs contain something that neither I, nor, I expect, many others are considering given all the scary economic reportage we’re enduring. Boeing – a prominent Dow component – has been in stasis since grounding, not delivering and perhaps not even selling its next big thing, the 737 MAX. That result stemmed from the apparently bad engineering that earlier this year caused two of those jetliners to crash, killing all aboard.
Add the output (and employment) that’s not happening as a result of the big GM strike, and you have employment and employment-related figures off right there. And they’ve actually been off for a while, if you consider how long Boeing’s 737 MAX fleet has been grounded. When massive companies like these two are temporarily out of the running, that has a YUGE effect on the nation’s economic numbers.
Good call by Cramer.
However, at this juncture, we’ll need a bit more than a good call to salvage our portfolios. Mine are a bit too overinvested at this point, which is a problem. I started hedging yesterday with a small opening position in the double-short S&P 500 ETF, symbol SDS (which, as a Boomer, always makes me chuckle). If we get some recovery today, I make take it off. On the other hand, I might double it up. This is a market that, increasingly, you have to play by ear. Right now, the Dow stocks seem like they’re getting the worst of it.
As for my eyes, they are looking at my computer screen right now. And at 12 noon ET, it’s telling me that the Dow is now off 550 points. That’s roughly 250 points worse than when I started writing this column. How much worse can today’s Wall Street Sellathon get? Shall we go for – 600 on the day? -700? Or will we get a relief rally?
– Headline image: Skateboard faceplant. Looks like today’s stock market action. Video still via YouTube video.