Markets need to hold here

This week saw a re-test of the October lows. That is to be expected in most stock market corrections. What is important to the future well-being of equities globally is that the averages do not decline much further from here. That does not mean that if the S&P 500 Index, for example, falls by another percent or so the ball game is over. Remember, folks, calling the levels of the stock market is an art, not a science. Sure, we could overshoot (most times we do), thrash around a bit more, and then recover. What I don’t want to see is a solid and definitive drop lower over a week or more. On the S&P 500, if we were to break 2,685, the next level of technical support would be 2,603. That would, in my opinion, trigger a panicky rush for the exits. If the 2,603 support breaks, then who knows. From a fundamental point of view, there isn’t much different that has transpired since last week or, for that matter, the last few months. The elections are over, but the new Congress doesn’t get a chance to bat until after the New Year. In the meantime, we are already hearing the noise levels rise. One Democrat, Representative Maxine Walters, a ranking member of the House Financial Services Committee, has promised to roll back some of the bank deregulation of the past two years. Another Democrat warned that signing on to the new North American Trade Agreement will require “adjustments” in the deal. At the same time, the FANG stocks, led by Apple, continue to batter the technology sector,...

Stocks take a breather

Stocks are in the process of consolidating after the big gains over the last week or so. So far, the October sell-off has led to a recovery of about half of what was lost. In the two months ahead, we should see even further gains. No matter how much we would like it to, the stock market rarely goes straight up. It is one reason why I constantly advise clients not to check their portfolios on a daily, weekly, or even monthly basis. And never check them in down markets. Why put yourself through that emotional turmoil–especially when you have no intention of using the money anytime soon. As we now know, the Democrats regained the House this week. As I, and everyone else on Wall Street predicted, the Republicans maintained their hold on the Senate. Some races, such as Florida, are still too close to call. But the results were predictable enough for the markets to rally over 2% the day after the results. Since then, traders have been selling. That’s natural. Once they bank some profits, and some of the overbought technical conditions as well as investment sentiment is reduced, stocks will find their footing and advance once again. In the meantime, get ready for the political noise that will most assuredly begin emanating from Washington. President Trump, at long last, has fired his Attorney General, Jeff Sessions. It won’t matter who he appoints in his stead, in my opinion, because nothing will stop the Mueller investigation and its findings from being disseminated. The Democrats will see to that. The question that the markets will ask is:...

October lives up to its name

It happened like clockwork. Earlier in the week, all three main U.S. averages re-tested their lows and then proceeded to bounce back, only to give it all back. That’s what happens during corrections, but it is not over yet. Afterall, it is October. Readers will recall that last week I wrote that nine out of ten times markets will re-test their recent lows. Naturally, this is more of an art than a science, so prices can bottom somewhat above or below those lows. In this case, the Dow hit its lowest level in four months. The S&P 500 Index slipped below its recent lows while NASDAQ got hit the worst, wracking up a total 10% decline from its highs. This is how it should be, since all year long the markets have been led by the advances in the tech-heavy NASDAQ. And by the way, there was no new news on Tuesday. There was no event that anyone can point to for the decline. That also makes total sense when you understand that this entire pullback has been technically-driven. And it isn’t over yet. We still have five days left in October and another six until the mid-term elections. The way the market has been acting this week, we could continue to see 1-2 percentage point-sized swings daily. The fuel for these pyrotechnics is earnings results. Remember my warnings that earnings this quarter, although good, would not be ‘as good’ as the past few quarterly results? As an example, Thursday evening, two of the big FANG stocks, Amazon and Google, reported after the close. Their top line revenue growth...

Pessimism reigns over the financial markets

It never fails. A couple weeks of declining markets and everybody becomes bearish. “New bear market unfolding,” “An end has a start,” or “More evidence of a global bear market” are just some of the headlines I’ve read in the past week. How did we go from bullish to bearish in such a short time period? I’ve been in this business long enough to recognize the fear and flight behavior of most human beings, including me. I’ve written in the past that humans are not cut out to invest from a behavioral point of view. Our cellular memory, going way back to the caveman, tells us that when a bear enters your cave, you run and run hard. Fast forward to today. The markets dropped 6% or so in a relatively short time, then rebounded erasing about half of the decline, only to fall again. We have all been here before, most notably in February and March of this year, but that little guy that sits on our shoulder keeps whispering “This time it’s different. This could be the Big One.” Am I right? Sure, there are challenges facing the financial markets over the next few months. The trade war that isn’t. Higher interest rates, due to the Fed tightening. Worries concerning global growth. After all, didn’t the International Monetary Fund (IMF) just cut its forecast for global growth this week for next year from 3.9% to 3.7%? They also reduced their estimates for 2018 and 2019 U.S. economic growth to 2.9% and 2.5%, respectively. Over in Europe, Italy’s populist politicians are insisting on spending more than they have,...

October sell-off arrives on schedule

Right about now, most investors are feeling sick to their stomachs. All three averages have plummeted this week and the selling does not appear to be over. We have all been here before. This time is no different. Saying “I told you so” doesn’t help. I’ve been preparing you for this downside move for weeks. Now that it’s here, what can we expect in the days and weeks ahead? By Monday, the month will be half over, but the third quarter earnings season has just begun. I have already discussed my warning that while earnings and sales will still be decent, they will not be as good as the last two quarters. In short, we are past peak earnings for this cycle. A week ago, this might have been an excuse to sell. Instead, investors decided to jump the gun and sell on the expectations that earnings won’t be as stellar as last quarter. That sets us up for the question–Will they, therefore, buy on the news? Another issue we have addressed: that markets usually decline just prior to the mid-term elections. Like clockwork, this has occurred once again. As voters head for the polls on November 7, it appears that the Republicans may lose the House. No surprise there, the ruling party almost always loses one or both Houses in a mid-term year. Finally, the trade war continues and with it the uncertainty around earnings, the global economy and China. Wednesday night the Chinese market declined by over 5%. For the year, it is down much more (33%). Chinese leaders, unlike other foreign politicians, are hanging tough for...

Will China be next?

  After this week’s trade deal between the U.S., Mexico, and Canada, investors are waiting to see if China will now come to the table. What would it take for that to happen? Mid-term elections could be the trigger. It wouldn’t surprise me to see a deal before November–since the polls appear to favor the Democrats. Trump’s tariff offensives, while supported by most of his base, are deeply disturbing to those who are feeling the brunt of foreign trade retaliation. Farmers, for example, and blue-collar workers in certain steel–related industries, are suffering. Many of them are also part of the 39% minority of Americans who support Donald Trump and his presidency. These predominantly white, uneducated voters might be swayed to vote against the GOP because of these tariffs’ issues. That could mean a drubbing for the ‘Grand Ole Party’ come November. A deal with China, even one that does little but save face, might be preferable to the president and his party than a big loss in the election booths. If one examines the successful deals the president and his men have negotiated thus far, we see some minor changes in the trade terms, but certainly not the massive overhaul in trade terms we have been promised practically every day for well over two years. Minor fiddling around with auto manufacturing content, and $40 million worth of reductions in Canadian barriers to milk imports (think American farm voters) is not a major overhaul of NAFTA. We have essentially cosmetic changes similar to those announced last week as part of the South Korea/U.S. trade agreement. It appears to me that...