Yesterday was a tough session.
The internals were a lot uglier than headlines, especially for the NASDAQ, which continues to lose that sense of invincibility.
Yesterday, there were more than 100% more declining stocks than advancers. It had fifteen more 52-week lows than highs, and the down volume was 200% more than the up volume. It was ugly, and I have to say it’s becoming more worrisome.
The NASDAQ closed at a key support point, right above its 50-day moving average. The failure to hold might break some heretofore strong hands and start testing the index in ways it hasn’t been tested in a long time.
Key support points:
Earnings High Bar
After the close on Monday, FedEx (FDX) and Oracle Corp (ORCL) were getting hit on earnings results that came up short. In the case of FedEx, earnings per share missed big time while Oracle’s top line was fractionally short. However, in this market, it’s otherwise priced for perfection and that’s a big no-no.
It will be interesting to see if management can turn things around during the conference calls. We have been taking profits the last couple of weeks and raised our cash position. I think that’s the smartest move, while the market seeks a catalyst between now and the next round of corporate earnings.
The market struggled all session long, then selling picked up on more tariff scuttlebutt. President Trump suggested he would lay out more details on the next round of tariffs on $200 billion in Chinese goods. The Street was fine with 10%, which amounted to a tax increase of $20 billion, which seems small in a $19 to $20 trillion economy.
The way all of this is being dragged out might actually be causing more damage to an investor psyche than these daily guessing games.
On that note, it’s clear something spooked investors last week. When The American Association of Individual Investors (AAll) updated their sentiment readings on September 13th, bullishness plunged.
Down more than 10% points in a single week, bullishness trails neutral, and bearishness is coming into this week.
I’m not sure what’s spooking individual investors. Although since it’s coming into the year with extreme bullishness readings near 60%, the rare move below 40% has been immediately followed by a sharp decline. What’s more intriguing is that it has been the persistently high level of investors that claim to be neutral on the market.
I think it’s all the result of two major crashes, an intense distrust in the market, and the folks that pull the strings in the market.
The thing is that investors historically have missed big rallies, only to charge into the market near peaks. I think the stories are overblown. And I think there are trillions of professionally-managed investing dollars that have been misallocated and might have to make major adjustments.
Tariff Fight Ratchets Higher
Also, after the close, President Trump authorized tariffs on an additional $200 billion in Chinese imported goods. The 10% additional levy adds up to $20.0 billion in taxes on goods imported from China. The market should issue a sigh of relief that the rate wasn’t 25%, but it’s now scheduled to be lifted to 25% in January.
I hope these trade negations result in America also taking a harder line on goods at risk of being made through slavery (child labor and/or forced labor).
This is important as globalists are now saying this effort will be a moot point because the supply chain will seek out cheap labor beyond China. For them, it’s only about the bottom line. It’s never about the consumer, the American workers, or even the American economy.
It’s about fatter bottom lines. It’s fine - these folks talk about being book smart, but they are specious when they want to put on a cap and robe to defend consumers while opening a rally against the creation of American jobs.
Sadly, people and organizations that usually would be outraged by the notion won’t say anything, because these deals are being fought by someone they don’t like in the White House. However, this might be the best last chance to make trade more into the image of our values.
The Walk Free Foundation has done a lot of work on the murky sources of imported goods to western nations, and sadly, America is at the top of the list.
The good news is the United States has fought against these practices more than any other as the Organisation for Economic Co-operation and Development (OECD) nation, but we have a long way to go. Now is the perfect time to pass it along, but it might impact the cost of things such as electronics.
Most At-Risk Slavery Product Groups
We’ll see how this all plays out, but we are in the thick of it. And I hope those folks that know, know that we should be fighting back, or at least acknowledge as much.
Stocks are trying to shrug off the China trade war this morning. The futures have been higher, but are well off the highs, and are trying to hold on to gains on news of china tariff retaliation.
In a recent tweet, President Trump said, “China has openly stated that they are actively trying to impact and change our election by attacking our farmers, ranchers and industrial workers because of their loyalty to me. What China does not understand is that these people are great patriots and fully understand that…..China has been taking advantage of the United States on Trade for many years. They also know that I am the one that knows how to stop it. There will be great and fast economic retaliation against China if our farmers, ranchers and/or industrial workers are targeted!”
U.S. Treasuries are predominately lower this morning but have been on an uphill climb with the 10 year back above 3%. The dollar is down again to 93.93, -0.2%, and the lowest its been since the middle of July.
We will get the latest read on housing at 10 ET when the NAHB Housing Market Index for September is released.