Yo-yo time for Mr Market: Crash and rally mode continues
WASHINGTON. Didn’t we just use our yo-yo image in a recent post to symbolize the current crash and rally habits of a truly strung-out Mr. Market? Well, we’re doing it again. Monday action on Wall Street seems bound to perpetuate August’s current whirling dervish action, as the Dow bounces back up some 200 points in a partial answer to last Friday’s negative 600 point bloodbath. These are sure hard times indeed for your average conservative investor who just wants to grow that precious stash a bit each year.
Here’s an excerpt from an internal Schwab crash and rally yo-yo analysis posted after Friday’s horror show by Schwab’s longtime chief investing guru Liz Ann Sonders and associates.
“Stocks plunged Friday after China said it would impose additional tariffs on U.S. goods, prompting a string of tweets from U.S. President Donald Trump and—after the market close—the announcement of U.S. retaliatory tariffs on Chinese imports. The S&P 500 index fell by 2.59%, while the Dow Jones Industrial Average lost 2.37%.
“The actions escalated a long-running trade war between the two countries. China’s new tariffs would target $75 billion of U.S. goods, including oil, autos and soybeans. The implementation dates coincide with the United States’ previous threatened tariffs on Chinese goods, with some taking effect on September 1st and the remainder on December 15th.
“After the market close, Trump tweeted that he would raise U.S. tariffs on Chinese imports even more, increasing existing duties on $250 billion in Chinese products to 30% from 25% on October 1st. Meanwhile, tariffs on another $300 billion in Chinese goods set to take effect September 1st will be 15% instead of the original 10%.
“In another tweet, Trump ‘hereby ordered’ American companies ‘to immediately start looking for an alternative to China.’”
We’re not exactly sure how our favorite President plans to enforce this. More than likely, in his own Trumpian way, he’s letting American businesses know that maybe now is the time to diversify the ol’ supply chain just a bit. Just in case. You know.
Recession fears on the rise
In addition to the current very real US-China trade war, traders and investors continue to worry about the potential collateral damage that they see peeking over the horizon. Growth has flattened in the US economy, although growth continues to occur. But a greater fear has emerged: the fear of an outright recession. More fuel for crash and rally action.
In our opinion, the constant recession talk is largely due to elements of the Deep State planting an unproven story that’s meant to trigger a real recession by scaring everyone out of taking business risks in the coming month.
Since they can’t throw Trump out of the White House with Russia Collusion, obstruction of justice, or other now thoroughly disproven fantasies, the Deep Staters and never Trumpers, including the legion of them that also infest New York’s financial corridors figure that a real recession will do the Trump administration in.
So why not wreck the hopes and dreams of middle America once again, just like they did during the Great Recession? Which Obamanation’s destructive policies arguably prolonged way past its sell-by date. Bring out that yo-yo again.
Treasurys and interest rates
As more and more investors – presumably – panic out of stocks and into bonds and US Treasurys, they continue to hammer yields down, down, down to absurd levels. The safety-oriented bond-buying binge has been exacerbated by our currently clueless Federal Reserve, led by its equally clueless Chair, Jerome Powell. Powell’s middle name is rumored to be Crash and Rally.
If Powell would pay a little less time strutting about and demonstrating his “independence” from President Trump and a little more time taking a look at conditions on the ground, he’d see that cutting the Fed’s overly high interest rate regime further would help support Trump’s necessary onslaught on the Chinese government, whose vampire-like economy continues to suck the lifeblood out of our own with impunity.
But Powell and his pals continue to live in another world and another time, which just exacerbates the situation.
The Fed’s stately pace, which ultimately must respond to the inevitable, may very well be the vehicle that tips us into recession in 2020. Which would amuse Powell no end, as it might wreak revenge on Trump’s re-election chances, “vindicating” Powell. It’s interesting how official Washington continues not to give one rat’s derrière about what their political games will end up doing to Joe Sixpack when he’s finally on the road to recovering from Obamanation. They don’t call this town “The Swamp” for nothing.
Jackson Hole: An adjunct of “The Swamp”
The Schwab analysis cited above treats this particular crash and rally issue more diplomatically than I can. But still…
“Federal Reserve officials held a symposium in Jackson Hole, Wyo., on Friday. While it wasn’t a policymaking meeting, Fed Chair Jerome Powell made remarks afterward that suggested the Fed may continue to reduce interest rates, saying the Fed ‘will act as appropriate’ to sustain the economic expansion. However, Powell warned that the Fed’s tools weren’t well-suited to address trade policy uncertainty.
“The statement attracted the ire of the president, who tweeted shortly afterward, ‘As usual, the Fed did NOTHING!’ Trump later referred to both Powell and China’s President Xi Jinping as an ‘enemy,’ indicating that policy uncertainty is likely to continue.
“The Fed’s next policymaking meeting is September 17-18, and it is widely expected to cut rates then for the second time this year. The Fed previously cut its benchmark federal funds rate by 25 basis points in July.”
Inverted yield curve?
Meanwhile, the situation worsens as the kinda-sorta inverted yield curve is telling us. What a bunch of overpaid dunces we have in Washington. Say what you want about President Trump. He’s never ambiguous. The Fed always is. And right now, that’s hurting our economy. And, of course, perhaps intentionally, playing right into the Democrat-CNN-MSNBC combine’s plan to talk the economy right into a recession so they can win next year. Screw the rest of us. Disgusting.
Friday’s dismal numbers
As for the market itself, Arthur Hill posted a piece over the weekend that summed up last week’s dismal closing numbers.
“Stocks were hit hard in early August with SPY [the S&P 500 mini] and QQQ [the Invesco ETF that tracks the tech-heavy S&P 100 index] falling six to seven percent in six days. These declines started from new highs in late July, which is when these prizefighters were at peak performance. The sharpness of the declines is like a prizefighter getting blindsided and knocked to the floor with a good left hook.
“Sellers delivered another left hook on Friday. Why? Because selling pressure was stronger than buying pressure. Yep, that’s about the only thing we need to know. Forget the blame game (Fed, Powell, tweets, tariffs, economy or whatever). Everything we need to know is reflected in price action.
“Stocks were short-term oversold after the first left hook in early August and a volatile trading range unfolded the last few weeks. This is the prizefighter trying to stabilize after the knockdown. He/She got up on his/her knees and perhaps even got one foot on the ground, but could only get halfway up. The same for SPY and QQQ. They managed to stabilize and recover around half of their prior losses, but could not maintain these gains and fell sharply on Friday. The prizefighters are back on the canvas.”
Today’s yo-yo bounce?
As for today’s yo-yo bounce, the Dow closed up almost 270 points Monday. The tech-heavy NASDAQ closed up nearly 102 points and the S&P 500 closed up 31 points and change. Percentage-wise, the gains are over 1 percent on the day and a bit higher for the NAZZ. Monday’s action only partially remedies Friday’s bucket of blood. But we’ll take it.
Which trick move will the Wall Street yo-yo show us next?
On the other hand, will the yo-yo go up or down on Tuesday? Will Mr. Market crash and rally? Or rally and crash? That probably depends on the latest tweet barrage. This ain’t the way I learned how to invest. Oh, well…
But we’ll enjoy today’s bullish break, occasioned by President Trump’s Monday morning observation that the Chinese really want to negotiate. If Beijing is concealing this with their usual Chi-com bluster. But, at the moment, their economy remains under worse stress than ours, so who knows? On the other hand, China is accustomed to robbing Western industrial and tech companies blind as a price for entering their markets. Therefore, we can’t imagine the Chinese government will willingly give up their unfair advantage.
For that matter, the same thing with American politicians. But we’ll let that conversation wait until another time.
In other words, sorry investors. We may be posting our yo-yo picture with some frequency in the coming weeks. Although we’ll look for more new images that express the same sensation. This wild market won’t be over ’til it’s over.
It’s just a hell of a time for rational people to invest. Just ask Mr Market.
—Headline image: PR image, Zombie yo-yo, via Amazon.com.