ref : - "Nine Reasons for the Sell-Off in US Stocks" , Bloomberg Markets
If memory serves correctly we've wheeled out that old quote about nobody actually knowing anything for certain before .....actually, it was a famous observation about Hollywood from iconic screenwriter William Goldman but we often feel it could be equally well aimed at the markets.
Early on Monday a perceived breakthrough in the US / China trade conflict and the prospect of fewer rate rises in the pipeline than the Fed had originally signposted had seen global equity markets marked higher. The bullish mood didn't follow through however, and yesterday the S&P 500 dropped by over 3.2% ..... which might make one question just who exactly these geniuses (genii ?) were that were doing the buying on Monday morning, especially as it felt at the time as though they were taking a lot of trust with regard to Sino - US relations in particular.
Let's not rush to judge, but it's a handy reminder that for every argument there's a counter-argument. More specifically, it's a good illustration that the days of the trading strategies (if you could call them that) that most characterised the long, long bull run in US equities -- "just close your eyes and buy it", trend-following, or even "buy the dips" for the more timid -- should be considered over. Things are suddenly a lot more difficult, and nothing can be taken for granted any longer.
Bloomberg have put together nine possible factors behind yesterday's fall .... you might not subscribe to all of them or even any of them ..... but that's rather the point. The market is very much a two-way street once more. Anyway, for what they're worth and in the full knowledge that in 24 hours the focus may be on other , contrasting drivers of market movements, they are :
*** Rather than being the great breakthrough in US - China relations, the truce may prove to be merely temporary and little more than an "agreement to reach an agreement" rather than anything more substantive.
*** The spectre of yield-curve flattening, and subsequent inversion, is rearing its head again. The closely followed 2yr / 10yr yield spread narrowed to little more than 11 basis points, and the less high-profile 3yr / 5yr spread is already inverted. Yield curve inversion has preceded the last seven recessions (though not all inversions are followed by the recession)
*** Important technical factors were in play ..... when the market trades down through crucial technical support levels such as those provided by the 50-day and 200-day moving average, as happened yesterday, it often triggers further stop-loss selling that exacerbates the move, which on any given day may or may not be supported by fundamentals.
*** Problems in the housing market, a sector considered a bellwether of economic health -- Toll Brothers, high-profile high-end builders, posted poor results
*** Momentum stocks (basically the Tech sector) came under pressure again with one of Apple's suppliers cutting forecasts -- and thereby suggesting that things are slowing up for Apple itself
*** Both NATO and US Sec. of State Mike Pompeo both warn about Russian non-compliance with nuclear treaties ..... as if the world did not have enough on its geopolitical plate.
*** Brexit chaos -- say no more ....
*** Forced selling : according to Charlie McElligott of Nomura Securities, trend-following quant funds were liquidating $50 billion in US equities yesterday.
*** JP Morgan boss Jamie Dimon describes the Q4 trading environment as "flat" , and thus adds to the pressure on the all-important financials sector already struggling with the growing chances of yield-curve inversion.
US equity futures markets are trading higher this morning (underlying cash markets are closed in honour of the late president Bush) , which may or may not suggest that all the bearish sentiment has been squeezed out of those nine factors and that the market has got something else to focus on. More likely, it probably just means that the markets have become more volatile and more difficult to predict. Which is sort of where we started ..... nobody actually KNOWS anything .... not really