New Market Watch – Bully in the China Shop


The Dow Jones Industrial slumped again yesterday and it caught my attention that it closed at 24,442.92, close to the 24,190 close on February 10th of this year, when I wrote:

‘I can’t find anything too smelly about the economy or markets generally, and equities specifically. With much unknown and PE ratios moderately high, the stock market in this context is likely to revert back to the side-way movements we saw not that long ago.’

I argued that the markets loved President Trump for the then expected corporate tax break and for his extremely harmful to the environment, public health, and safety deregulation efforts. What investors didn’t and still don’t love is his unpredictable ‘brand of crazy, and we should worry about unexpected trade and foreign investment monkey business.’

Trade War Inevitable?

Trump’s trade in tariffs have been moderate to date. I would argue that in the context of any serious political setback, however, a trade war is as inevitable as the six feet five guy sitting in front of you at an expensive theater production.

Then there is this White House’s stunning lack of forethought (on just about any issue, but the economy in particular),  which is as likely to precipitate market retribution as any specific policy.

With the economy near peak potential, low-skilled labor wages rising, the Fed looking to raise interest rates, signs of weaker growth in key trading countries (China among them) and increasing domestic turmoil, sideways is the very best market movement we can expect in the near future. Like an expensive china shop, the market is full of delicately supported value with average Price to Earnings ratios that don’t make for good shopping.

Correction on the Way?

I didn’t predict a correction last February, but I am now, the chances of which are about 70% between today and mid-second quarter 2019.  So think about defensive and dividend stocks. Short selling – if you have that brand of courage – could make a pile (I don’t short myself and would never recommend it).

As with last February, the biggest threat to market stability is President Trump and his well documented chaotic administration which has been quite lucky to not have tripped over its own incompetence into a really big mess.

It seems almost impossible that exponentially multiplying dysfunction will not cause this administration to stumble. The possibility of a hard and protracted economic landing only grows greater as new crises of confidence accumulate.

The biggest unknown are the mid-terms.

Will a Democratic take-over of the House hurt or help the market?

Bully in a China Shop

The Dems could simply check President Trump’s worst impulses and not much happens. This will lead the economic growth precipitated by President Obama and juiced by Trump’s unsustainable tax cuts to simply slow as all expansions inevitably do.

Or they could decide to impeach.

There is more danger to the market if the Dems go this route. And if they do, they had better do a good job of it because I guarantee you this: no one wants a wounded bully in this delicate market’s china shop.

NOTE You must consult your financial adviser before taking any investment decision. The opinions expressed in this article are not intended as professional/ investment advice in any manner, but provide a private perspective on the economy and stock markets.


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