WASHINGTON. Wall Street’s Wheel of Misfortune continues to spin against investors who still hold idle cash hiding in their battered brokerage accounts. Stop us if we’ve said this already. But as Q4 2018 draws closer to a nauseating close, we keep thinking of an old carny barker at our church’s annual fundraising carnival back in the 1950s. Spinning his (rigged) Wheel of Fortune, he’d shout:
Round and round and round she goes,
And where she stops, nobody knows!
Wall Street’s Q3-Q4 answer to the average carnival’s rigged Wheel of Misfortune is the Street’s own version of that still-popular game of chance. Except that any investors with a shred of bullishness remaining in their psyches don’t want to win a big, colorful stuffed bear as a prize. They alreadh have enough bears lurking in their Christmas stockings. Nevertheless, a big bear is about all investors will carry home – if they’re lucky. Meanwhile, the surprisingly disastrous Market of 2018 winds toward its likely vicious close.
Today’s light-starved Winter Solstice matches Mr. Market’s mood
Today marks 2018’s Winter Solstice, the shortest, gloomiest day of the year. But if Friday trading action is any indication, that won’t be the gloomiest trading day of the year. Next week, Christmas week, is likely to be another nightmare for the bulls. Bulls may even want to consider actually going to church next week to atone for their sins and ask God to do a Lazarus miracle and revive a very moribund Mr. Market in 2019.
Over the next 11 days, US stock markets will be closed all day twice, for Christmas Day, December 25, 2018 and New Year’s Day, January 1, 2019. In addition, the prequels to those holidays – December 24, 2018 and December 31, 2018 – will find markets closed early. Trading will likely prove abnormally light on the other days when the market is open as usual.
On the other hand, given the wide spreads in many issues lately, the high-speed trading machines, all apparently under the control of the bears, will probably continue to churn out regular sales and short sales nonstop, given the holiday absence of actual human beings. So things could get a lot worse before that crystal ball descends on Times Square, putting an end to what, for this investor at least, has been the worst trading year since the twin disasters of 2008-2009. It all seems like it was a rigged Wheel of Misfortune from the start.
Friday trading action finds Wall Street’s Wheel of Misfortune alive and well
Friday has been, if anything, weirder than usual, stock market-wise. Markets opened wobbly, tried to get into the green, but failed. They subsequently did the usual header. But then, the gloomy blabbermouths at the Fed managed to activate their Fedspeak Jabberwock once again. But this time, the spin was… positive! ZeroHedge provides the details.
“One day after former NY Fed president Bill Dudley essentially told Bloomberg TV that the Fed would hike until something breaks as there was ‘not much evidence that monetary policy is too tight’ pushing markets sharply lower, the current NY Fed president, and former Fed überdove, John Williams reversed the narrative and sent stock[s] soaring after a series of dovish comments on CNBC, saying that the ‘Fed is listening to markets very carefully’ and is ‘hearing market concerns about risks to the economy.’
“Williams said that since the Fed is moving to data-dependent mode, that means ‘listening to markets’ and added that the Fed is ready to ‘reassess and reevaluate our views’ noting that further hikes are not a commitment or a promise while adding that the Fed is attuned to both the possibility that the outlook may change and also attuned to ‘downside risks.’”
Well thanks, John. Wasn’t this essentially what President Trump was tweeting just the other day? But we’ll let him continue. Sounds good so far.
“Adding more fuel to the dovish fire, the [überdove] also said that the plan to say on the current path ‘assumes the economy remains strong’ and that the Fed will ‘adjust its views based on the data and outlook.’
“Finally, confirming what Powell said three weeks ago, Williams said that ‘we are now at the bottom range of estimates of the neutral rate,’ while adding – redundantly – that the Fed ‘wants a strong economy and the expansion to continue.’”
Euphoria vanishes in a New York Minute
Stocks suddenly reversed their relentlessly negative course when this news hit the wires. All of a sudden, investors were riding a terrific, big-time rally, with all three averages blasting triumphantly back into the green. Wow! The Fed is actually listening!
Unfortunately, this euphoria seemed to last for less than 30 minutes or so, at which point, the relentless selling commenced once again. Wall Street’s Wheel of Misfortune took another negative spin.
As we write this column, around 2 p.m. ET, the market is headed south again, leaving enough destruction in its path to equal Sherman’s March Through Georgia. All three major averages are down.
A bear market for the NASDAQ
The Dow (thus far) has suffered the least damage. But the S&P 500 is down nearly another percent from Thursday’s neutron bomb attack, while the tech-heavy NASDAQ is feeling a lot like tech lite today, as it relentlessly sheds value. It probably should, given the absurd overpricing of assets in that sector over the past year.
Enough should be enough. But not for the NAZZ, apparently. It’s currently off roughly another 2 percent on the day and is totally, officially in its own hellish bear market.
Techs are almost literally drowning in red ink at this point. It’s hard to know how much of this massive decline is overkill and how much is due to the market’s heretofore insane overpricing of tech assets. We’ll find out someday, but probably not soon.
Add quadruple witching to an already poisonous witches’ brew
Arguably making today’s fine mess even worse is the fact that – wait for it – today marks the final quadruple witching day of the trading year. That’s Wall Street jargon for the once-in-a-quarter phenomenon in which every possible option and futures contract expires on the same day and the same hour. Which is right now, 2 p.m. ET. This tends to result in wild trading moves as the machines pick off stock and option victims for fun and profit, which little guys like us get caught in the meat grinder. The Wheel of Misfortune remains decisively unkind.
Witching days tend to exaggerate the market’s current tendencies. That may be at least in part, why John Williams’ soothing Fed remarks provided only a transient market high this morning. Otherwise, market direction points decisively down, so quadruple witching has likely taken things even further south than otherwise might have been the case.
Next: Making sense out of a battered portfolio.