Over the weekend, as a result of the G-20 meeting, the United States and China agreed to a deal in which the nations would defer the implementation of additional tariffs for 90 days and work during that period on a new trade agreement which would also tackle intellectual property issues.
As a result, on Monday, stock markets rallied across the board.
On Tuesday, false and uncorroborated reports that President Trump was fabricating the agreement with China at the G-20 meeting sent markets into reverse. Also, another cause of unnecessary panic was an inconsequential inversion of a part – itsy bitsy part – of the yield curve. This was extrapolated into belief that the entire yield curve was inverting. Not so. Finally, some rumblings out of Europe that UK PM Theresa May would not receive Parliamentary approval for the Brexit deal. Again, this was supposition, not fact. Cue Dragnet – just the facts ma’am.
Once, the Standard & Poor’s 500 (SPX) broke through the technical 200-day moving average, the computerized algorithmic trading programs (Algos) kicked in and the market cascaded over another 2% into the close.
As you can see, we had two problems. First, reporting uncorroborated information as fact is irresponsible. It is akin to yelling fire in a crowded movie theater. Second, those Algos are basically one way actors – to the downside – they only hurt the markets and do not help.
The best way to curb the Algos is two-fold: 1) bring back the uptick rule and 2) eliminate the Volker Rule. I would note that nearly a decade ago, I was asked by my colleague Jim Cramer of CNBC to work with some other colleagues (shout out to Eric Oberg and Bill Furber) and Senator Ted Kaufman of Delaware on the Algo and uptick issues. We even spearheaded a petition to the SEC. The problem is that Wall Street lobbyists had no appetite to support any of those changes. Hence, our efforts fell on deaf ears.
Then on Tuesday night, Chinese government officials confirmed what President Trump asserted. Namely that there was a 90-day moratorium on raising tariffs and that trade discussion were underway.
Futures in a limited session ahead of the national day of mourning for President George H. W. Bush advanced on Tuesday night, about 0.5% for the SPX. However, the technical damage done on Tuesday just attracted futures sellers Wednesday night, reversing Tuesday’s overnight gains and adding close to another 1% to the downside.
How we open or close on Thursday is just a guess. My gut says that the market has the potential to test the double lows in the area of 2,630 – 2,640 for the SPX. Also, my gut tells me that we could open lower and buyers – from pension funds – could step up and we close off the lows and perhaps flat to higher.
Two other facts not mentioned midst all this craziness. First, the 10-year US Treasury bond yield is now below 3% at 2.89%. Recall the sell-off earlier this year, in February, when the world was coming to an end when the yield went above 3%? So, why is this development of a sub-3% yield not welcome as positive? Second, yesterday, the Federal Reserve released it’s Beige Book. It was a positive economic report.
So, we are going to have to withstand at least another day of volatility. However, I am not ready to get defensive or bearish.
Finally, on Friday, we will receive the November jobs report. 198,000 new jobs are expected to be created.
Disclosure: At the time of this commentary Scott Rothbort, his family and/or clients of LakeView AssetManagement, LLC was long SPY, SSO & SPXL although positions can change at any time.
Scott Rothbort is the President & Founder of LakeView Asset Management, LLC, a registered investment advisor specializing in high net worth private wealth management. For more information on investing with LakeView Asset Management, LLC call us at 888-9LAKEVIEW or request more information by clicking on the contact button on the top right hand corner of the website. LakeView Management, LLC is a Nevada LLC, with its principal office located in Henderson, NV and branch office located in Millburn, NJ
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