Friday's Market Action: At Least It Wasn't Nothing
Friday's market action saw stock plummet almost 2% along with bond yields. "They" say it's because of fears of global economic slowing. Could be. But there's no really new news there, is there?
The Chinese economy has been slowing for a while now, despite what the Chinese would like you to think. Maybe the fact that Chinese A-shares had an even more spectacular rise than the US stock market has diverted people's attention from the underlying sluggishness of the overall economy.
Then there's Europe. Italy's been in recession for months. And German bund rates hit zero this week. That usually indicates a very weak outlook for the economy. And if Germany's economy dips into recession, you can expect other European countries to follow along.
Of course, let's not forget the Brexit mess. The British government hasn't been able to manage the planned separation very well at all - so much so that the EU announced they were taking over the process. Apparently they have the authority to do that.
But what about the US-China trade deal we keep hearing about? Recently the chatter has focused on general agreement to end or at least substantially reduce tariffs. But, oops, apparently it's not what it seems. Things have gotten somewhat complicated. The latest talk has the U.S. reducing tariffs, but spaced out in a way that it seems the Chinese don't care for. With that, it would seem any positive impact from an improving US-China trade situation has been muted.
Add one more item: the recent stock rally. After last fall's plummet, leading to the worst price decline for stocks since the Great Depression, a rather strong "V" rally ensued beginning after Christmas. The result: the sharpest rise in stock prices since 1998. That's 20 years. Could it be that all that optimism over a US-China trade deal that previously dominated headlines resulted in it being "priced in" now to the stock market. If so, it means that even if there is a sudden happy resolution, it won't cause much if any rise in stock prices, since that's already been priced in.
Now none of this particularly changes the big picture all that dramatically. That's still a bit of a muddle. Is recession coming? Have we been in a bear market? And if so, when will the next shoe soon drop? We really can't say based on today's action. It could simply be the inevitable relaxation of overstretched upward momentum.
One thing that may be going on, though, is a short-term pullback. We're talking about more than what occurred on Friday. Maybe Friday's just the beginning. One reason you might make a small bet on negative short-term action in stocks: The most recent AAII sentiment survey showed the strongest bullish sentiment since the last time the stock market flopped. It's been a rather good contrarian indicator over the years, so don't be surprised if the ugly and bad take center stage for a bit before the good returns again.
If any of this has you in a tizzy, consider kicking back and getting the weekend started with, among other things, some Nat King Cole - particularly his love songs. Here's one of my absolute all-time favorites. Best way to listen: Kick back and relax. Shut out the world and all its noise and distractions. Give your full attention to one of the best recordings of one of the greatest popular artists of all time.
What better way to start a great weekend!
The Chinese economy has been slowing for a while now, despite what the Chinese would like you to think. Maybe the fact that Chinese A-shares had an even more spectacular rise than the US stock market has diverted people's attention from the underlying sluggishness of the overall economy.
Then there's Europe. Italy's been in recession for months. And German bund rates hit zero this week. That usually indicates a very weak outlook for the economy. And if Germany's economy dips into recession, you can expect other European countries to follow along.
Of course, let's not forget the Brexit mess. The British government hasn't been able to manage the planned separation very well at all - so much so that the EU announced they were taking over the process. Apparently they have the authority to do that.
But what about the US-China trade deal we keep hearing about? Recently the chatter has focused on general agreement to end or at least substantially reduce tariffs. But, oops, apparently it's not what it seems. Things have gotten somewhat complicated. The latest talk has the U.S. reducing tariffs, but spaced out in a way that it seems the Chinese don't care for. With that, it would seem any positive impact from an improving US-China trade situation has been muted.
Add one more item: the recent stock rally. After last fall's plummet, leading to the worst price decline for stocks since the Great Depression, a rather strong "V" rally ensued beginning after Christmas. The result: the sharpest rise in stock prices since 1998. That's 20 years. Could it be that all that optimism over a US-China trade deal that previously dominated headlines resulted in it being "priced in" now to the stock market. If so, it means that even if there is a sudden happy resolution, it won't cause much if any rise in stock prices, since that's already been priced in.
Now none of this particularly changes the big picture all that dramatically. That's still a bit of a muddle. Is recession coming? Have we been in a bear market? And if so, when will the next shoe soon drop? We really can't say based on today's action. It could simply be the inevitable relaxation of overstretched upward momentum.
One thing that may be going on, though, is a short-term pullback. We're talking about more than what occurred on Friday. Maybe Friday's just the beginning. One reason you might make a small bet on negative short-term action in stocks: The most recent AAII sentiment survey showed the strongest bullish sentiment since the last time the stock market flopped. It's been a rather good contrarian indicator over the years, so don't be surprised if the ugly and bad take center stage for a bit before the good returns again.
If any of this has you in a tizzy, consider kicking back and getting the weekend started with, among other things, some Nat King Cole - particularly his love songs. Here's one of my absolute all-time favorites. Best way to listen: Kick back and relax. Shut out the world and all its noise and distractions. Give your full attention to one of the best recordings of one of the greatest popular artists of all time.
What better way to start a great weekend!
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