So is the “Trade War” Crushing Stocks?

Bull markets climb a wall of worry. What the heck happened?

OK, it was an ugly week. Facebook (FB) dropped 14% and lost $75 billion in market cap. It’s down 10% year-to-date. It’s currently trying to dig itself deeper into its self-inflicted debacle. It wasn’t just Facebook. Alphabet (GOOG) dropped 10% in the week and is down 2.4% year-to-date. This was a broad selloff.

The S&P 500 index dropped nearly 6% for the week and 9.9% from the peak on January 26. It’s down 3.2% year-to-date. At 2,588, it’s just 7 points above the low point on February 8, which is begging to be taken out on Monday. This drop is big enough to show up on a long-term chart, but given the nine-year 320% rally, why would anyone be surprised?

The Dow dropped 5.7% for the week. It’s down 11.6% from the peak on January 26, and down nearly 5% year-to-date. It carved out a new low in this down-cycle.

The Nasdaq dropped 6.5% for the week, and 7.8% from its peak on March 12, but is still up 1.3% for the year.

When stocks soared no matter what, it was because they were “climbing a wall of worry,” which is, as it was ceaselessly pointed out, what bull markets do. Bad news was good news. It didn’t matter what happened. The worse the news was, the more stocks would climb. Falling earnings and revenues no problem. Geopolitical nightmare scenarios no problem. Trump’s promises during the campaign and after the election to fix the trade imbalances in the US were just as well communicated as his promises to cut taxes. From the day Trump was elected until its peak on January 26, the S&P 500 soared 30%.

And yet, suddenly, according to Wall Street analysts and the media, the universally declared culprit for the sell-off this week was the decision by the White House to do what Trump had been promising to do since the campaign.

“A Horror Week for the Dow Has Investors Begging for Trump Respite,” Bloomberg said. Of course, these investors are always whining when their investment theories fall on their nose, no matter what the perceived cause. Perma-bulls on Wall Street always beg for “respite.” Usually, their begging is directed at the Fed, but now it’s directed at Trump.

“Wall Street nosedives as investors flee on trade war fears,” Reuters reported.

“Trade Fears Jolt Global Asset Prices,” The Wall Street Journal said. “Looming trade conflict between U.S. and China is weighing on stocks, currencies and commodities.”

Though everyone saw the tax cuts coming and priced them into stocks, thus driving up the S&P 500 30% since Trump’s election, no one saw the trade policies coming? I mean, come on!

Everyone knew Trump would crack down on the trade imbalances. The NAFTA renegotiation has been going on for months. China’s gigantic trade imbalance with the US has been on Trump’s verbal target list since 2016.

But the fact is simple: during a bull market, this type of “bad news” would have caused stocks to jump 6% at a minimum in the week. A bull market climbs a wall of worry, analysts would have said. Nothing would have mattered.

When markets head south, the media and analysts are trying to find a reason, other than reality. This time, the excuse du jour was the risk of a “trade war.” Next time, it’s some other excuse du jour.

Reality is a little harder to stomach for these folks. The stock market is horribly overpriced, with many individual stocks at absolutely ludicrous levels. This is a flaming stock market bubble. Every indicator has been pointing it out for years. At some point, bubbles reach their maximum and begin to deflate.

In addition, the Fed has been tightening, and the markets have been fighting the Fed. This always ends the same way. Eventually, the markets will back off from fighting the Fed, and this leads to a long series of downward adjustments in the markets. The Fed has been pointing at the stock market as one of the asset classes where values are “elevated.” It’s worried about financial stability and doesn’t want asset prices to inflate to such an extent that they’ll take down the financial system when they implode. So this selloff has the Fed on its side.

The Fed has also been unwinding QE. This started in October with baby steps that are now accelerating. Just as ZIRP and QE caused the biggest bout of asset-price inflation the world has ever seen, rate hikes and the QE-Unwind will reverse some of this. It’s not a secret. What are people thinking?

Investors around the globe had it historically good for nine years, with all asset classes experiencing sometimes hilariously sharp price surges that lasted year after year after year. The real reason for the selloff now is that enough players see that this cannot go on forever, and they’re trying to unwind some leverage and take some risk off the table, and other players are losing their enthusiasm. These players could be algo-driven or human. Either way, at these rarefied levels of asset prices, any decline in blind enthusiasm causes prices to swoon. No trade war required. Just the reality of pandemic asset bubbles having reached their limits.

In an interview about the trade sanctions President Trump is throwing at China and at Corporate America, Ambassador Cui Tiankai trotted out all kinds of vague threats, including the possibility that China might cut back on its purchases of US Treasuries. Read… China’s Empty Threat of Dumping its US Treasuries

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  95 comments for “So is the “Trade War” Crushing Stocks?

  1. Jack says:

    Wolf. A brilliant and obvious treatise. Well written. Terse. Factual. An enjoyable read. Keep it up

    • mike says:

      Agreed. I am surprised to be on the same side as Trump, but China and other countries have practiced merchantilism not free trade. Tariffs will hopefully prompt negotiations.

      The QE sell off should impact markets more.

  2. RG says:

    Excellent analysis. We need to get you a position with the Wall Street Journal so you can coach the other reporters/writers! Today’s mainstream financial reporters seem to have no long-term situational awareness.

    • Drango says:

      Financial journalists can call themselves reporters, which is fine if that’s all they do. But when they veer into explanation or analysis, their ignorance becomes glaringly apparent. I wish more of them would read this site instead of living inside their own echo chamber

  3. Paulo says:

    Great article full of insight (as usual :-)

    regarding statement on reality: “The stock market is horribly overpriced, with many individual stocks at absolutely ludicrous levels.” Amen to that.

    I guess I am stupid because I looked for this to implode several years ago and just put my money in the bank and bent over into the low interest rate environment. Would I do it again? Well, maybe a couple of years later with this wonderful 20/20 hindsight. Regardless, I have slept nights and my wife and I are content with what we have been lucky enough ‘to own’ along the way through life. I think personal success is about attitude; good health, being willing to work hard, honesty, gratitude, paying things forward. This mindset has worked just fine for us. I have friends who spend a great deal of time chasing stocks. I have friends with adequate retirement income still working because they are afraid to let a dollar swim by. Boy oh boy, these days just don’t come back around again. Ever.

    The valuations are just so damn high I question how anyone thinks they might continue to rise? Surely, buying anything now is at the ‘top’, and potential earnings are dubious, at best. I believe this applies to most RE as well as stocks. Plus, you always need that elusive buyer when it is time to get out of an investment.

    No stocks for me. HF trades, insider shenanigans, and betting against algos in a crazy unstable social/political climate is something I just don’t understand or am willing to risk. I will continue to wait for my neighbour’s house to come up for sale, (which it will…..he is 90 and she is 81 plus his ticker is dodgy at best). We have already talked about it and will come up with an honest price based on an outside market evaluation. Building and housing I understand. The Market, however, is misrepresented by many who would take me to the cleaners if they could.

    Let’s say you/I/us have made a few bucks along the way. My big question is how do you preserve your wealth and access assets going forward? Try and buy something with gold. You still need some fiat to operate with. A rental income is relative to the times and situation, provided it has not been overly financed. There is always a market for reasonably priced housing. Just my opinion and we know what those are worth.

    I think a lot of people are going to find out their stocks aren’t worth the money they are printed on, and their brokers won’t return their calls. (Maybe Monday)

    • Bob says:

      You’re not stupid, and you aren’t the only one who has been watching from the sidelines, in disbelief, as the market continued to climb into the stratosphere. It’s a long way down from here.

    • curious cat says:

      Me too!

    • TXRancher says:

      I too have been on the stock market sidelines since 2014. But I am not greedy and I saw that the stock market system did not operate like the many decades before. I just didn’t care to chance a re-occurrence of 2008 which took me until 2010 to really recover.

      For me I have directed my investment into land property. Yes this is dead money until you sell but they don’t make land anymore. And there is minimal income with low margins from cattle raising and/or hay sales. But this also sets us up for self sustainability if need be.

      As you said I can sleep easy.

    • Night-Train says:

      I too didn’t think the irrational exuberance could run on so long. And at my age and life circumstances, staying away from the tables seemed the best choice.

      Ditto to Wolf. Always informative, but you nailed this one down tight.

    • hendrik1730 says:

      Exactly my thoughts too.

      I am wondering ( standing at the sidelines ) since 2013 how this bubble could keep growing …. never got into stocks since 2003, P/E od 25+ are insane certainly when observing the stock markets were being boosted by share buy-backs funded with DEBT by their own CEO’s/CFO’s thereby collecting the big bucks through selling their option packages and zero-interest rate policies by the FED.

      Criminally legal madness leading to Weimar or Venezuela.

    • Cynic says:

      Quite right Paulo: one of the sanest commenters around if I may say so.

      As for gold, when Argentina melted down, converting gold to fiat was very, very dangerous.

      The people who would change it for you weren’t exactly fine, upstanding citizens.

      • kevin says:

        Cynic, I like your name already.
        I share similar sentiments on people who hoard gold nuggets thinking that its going to save their skin when human civilization goes back to the stone age after some kind of global economic meltdown….or so they hope.

        In the event that your gold becomes “useful” in such a post-industrial society; your gold is going to be a dangerous item to display indeed. Once you show your gold coins to exchange for something, you will get killed or targeted. Even if you do not get killed trying to exchange you gold for some food, I’m sure your shiny things will attract so much attention that everyone will be closely watching you and following you around to see where you hide the rest of your secret gold loot, and then stab you in the back once you open your hidden trapdoor, right? lol.

        Stick to pieces of paper money which can double up as toilet paper or to burn as heat fuel for winter. In fact, toilet paper would probably be more useful as a barter item than gold pieces in a real civilizational collapse scenario. Ask your grandparents who went through WW2 which they would rather have for barter, if they are still around to share their stories with you.

    • BaconToastandLettuce says:

      Wealth preservation going forward, that’s the big question, I believe, for everyone over 55 that has two dimes in their pocket to rub together. The answer depends on your skill sets and temperament based on what I have seen. For us it’s real estate, small, multi unit, residential buildings.

      In 2007 we cashed out of California and “split the sheets” for the east side of the Colorado River, built a nice desert home then began to acquire those zombie duplexes that had been foreclosed on and sat vacant for years that Fannie & Freddy let deteriorate…mana from heaven, cash buyers only need apply as major rehab is required. To pull this off you need certain skill sets in construction & property management, it’s not for everyone.

      That said, everyone has some unique skill sets. The question begging for an answer is how to match the skill sets to wealth acquisition and preservation? Unfortunately there is no easy, canned, answer as we have to figure it out for ourselves.

    • van_down_by_river says:

      I too have been part of the “sideline” money that CNBC gives as a reason why stocks will continue to rise – if that guy living in his van down by the river has not yet fully invested then of course stocks must continue to rise.

      Unfortunately the value of my savings has eroded badly over the last several years. That’s how it goes, we are all forced to lay down our bets, like it or not. I bet that central bank insanity would end, it did not, and my savings got crushed by inflation. Those that bet central banks would go wild were astute gamblers and many achieved financial independence.

      Of course, if stocks ever reach a sane level again I will need to get fully invested. I think short term stocks do badly when inflation heats up but long term they are productive asset that have real value.

      Would you rather own Reich Marks from the 1920’s or stock in German companies from the 1920’s. Bayer, Siemens, ThyssenKrupp, Daimler, Munich Re and on and on… if you owned stock in German companies in the 1920’s you may have had a bumpy ride but in the end your wealth was intact and grew, but those who held fiat currency were left with nothing.

      • Johnny W. says:

        I’ve studied were was the best place to put your Money in the Weimer Republic during their episode of Hyperinflation and it was, indeed, Stocks in Major Corporations, particularly a mix of International & German Domestic. Gold did good as well. Gold is hard to safeguard though. FDR declared Bank Holidays and Federal Swine cleaned (stole) Citizens’ Gold. So, there you have it: what does one do to preserve and minimize/mitigate the damage that is surely coming???

    • Bill says:

      Thanks for that to you and Wolf. I’ve been feeling like somewhat the fool as I chose to set things out with my IRAs etc. last year and go to cash and minimal returns in CD’s. My tax preparer/IRA-mutual fund seller keeps spewing the main stream mantra about how I “need to get back in” and the saw: “historically the stock market”… I’m no financial wizard by any means but even I can tell from my life here in blue collar America that things are not good in the real world where people have to physically work to meet their financial obligations and the whole Wall Street world is smoke and mirrors.

    • Johnny W. says:

      Paulo, I believe the best way to price US Stocks is to use the PE10, otherwise know as the CAPE SCHILLER. The other way is the Buffett way, which is the the Ratio of Total Market Cap to US GDP. Both Metrics, as you suspected are at, or past, Historic Valuations.
      Both are available to you @
      I have no affiliation with this website, but I do use it occasionally to observe the latest levels of mass insanity.

  4. Lee says:

    Paulo, I am across the ditch from you on the Oly Pen and agree to your views on things in general. Great to see I am not the only person on the West side that can see threw the liberal BS that is being fed to the natives. Keep the faith. Lee

  5. Nick Kelly says:

    Have to disagree somewhat. Indeed the stock market and all other assets are overpriced and due for correction.

    But the chaos at the WH is likely to increase the severity.

    Economic adviser Cohn resigns (NOT fired) after Trump ignores his advice re: tariffs on steel, supposedly to strike back at China.

    Wilbur Ross had just come from a meeting with steel making execs and went straight to Trump, who famously doesn’t weigh alternate view points, but is more likely to go with the last person he talked too.

    So to get back at China, without even a day of internal debate, Trump announces a 25 % tariff on ALL imported steel.
    Then, lo and behold. it turns out that China is barely represented as a steel supplier to the US. It’s number 10 or something.
    Canada is number one.
    Good buddy Canada quickly gets an exemption as a US ‘ally’

    ‘What, we’re not?’ say Japan, South Korea, and Australia, the latter being one of the ‘Five Eyes’ Intel sharers and the only country to fight with the US in Vietnam.
    More or less everyone including the EU now has an exemption, except China that was never going to experience much effect anyway, and is trying to shrink its overcapacity in steel .

    Then it turns out that the good news for steel makers is bad news for steel rolling mills, including one in California that employs a thousand workers, or double the five hundred hires the steel makers rushed to announce. (We know how dubious announcements can be: remember the jobs supposedly saved at Carrier?)
    The California mill imports slab steel from Brazil and rolls it into usable sheets.

    So why steel? Because it sounds good. Our language itself is full of adjectives: ‘his steely resolve’ etc.
    ‘Stalin’ was not the dictator’s real name: it’s the Russian for ‘steel’.

    It sounds like the foundation of an economy. Maybe that’s why every country seems to think it must be in steel, including ones you might not expect, like Belgium.

    The world is awash in the stuff and the smart move for a developed country is to leave the dirty, dangerous, polluting. low- profit end to Brazil or India and add value to the commodity.

    OK all this is debatable. But the WH is not a place for calm reasoned debate.
    The President has said: ‘Who knew health care was so complicated?’

    Trade is also complicated.

    To end on a positive note: it looks like US negotiator is backing off huge changes to the auto-sector of NAFTA.
    That had the potential for disaster.

    There is a North American sector, an Asian sector and a European sector.
    The real competition is between these sectors, which are all in overcapacity.

    • Wolf Richter says:

      You said: “But the chaos at the WH is likely to increase the severity.”

      But wait… we’ve had chaos in the WH since Jan 2017, and stocks surged 30%? And suddenly the same chaos causes the selloff? I mean, I would agree with you under normal circumstances, but this market hasn’t been normal for years.

      • Max Power says:

        I guess to Nick’s point would be that while there was past chaos, actual government policies instituted up until quite recently have generally been business-positive (cutting regulations, cutting taxes, increased government spending into the economy, etc.).

        Now however, it seems the actual, implemented policies and actions emanating from the chaos are business-negative… tariffs, trade wars, loss off important swamp-creatures (Tillerson, Cohn) and their replacement with more nationalistic ideologues, possible regulations on the FANGS due to their recent misdeeds, etc.

        In other words there may be such a thing as, oh, let’s call it the “Trump business sentiment” and as the overall chaos at the top spreads to more parts of the governance apparatus, it’s now hit the business sentiment — and it now is turning — and affecting the markets.

        Obviously, given where valuations are, once the investment sentiment turns, there is plenty for it to “work with” to produce real effects.

        • Wolf Richter says:

          There are losers and winners in Corporate America when it comes to trade policies. Tech companies have long griped about IP theft in China. Automakers have griped about required tech transfer to do business in China, etc. So there is a lot of rejoicing going on in the executive sweet about some of the potential policies and a lot of moaning and groaning about other potential policies. This is not clear-cut.

      • Indirectly, this market is driven by the expanding global monetary base, and the NYSE became the hot money destination. Tersely worded, the bully wanted all the marbles and the global players decided to bet on the bully. Now the game is done, or global liquidity is shrinking, and the Fed is leading the counter move against the globally accommodative financial backdrop and the shift of corporate assets back into the US hurts global credit. Certainly if you take profits now, and you made money the last few years, thank them at the SNB, and the EU and PBOC. And you will get your inflation, Janet.

      • d says:

        Jan 2017?????????????

        More like Jan 2009, and probably Jan 2000.

        Its just that since Jan 2017 its been slightly more obvious.

      • drg123 says:

        I think I’d welcome continued chaos in the WH. With the hawk-ward last few personnel changes, I’m dramatically more worried about actual order being established in this White House.

      • wkevinw says:

        Yes, the “chaos” as the media like to call it, is a feature not a bug: see disruption.

        People don’t like it when they get jolted out of their comfortable recency biases.

        I am not saying that the administration would say it has it all figured out- that is exactly the point.

        There are plenty of academic studies that say the globalization of trade (GATT, WTO, NAFTA, etc), especially if you look at the opening of trade with China, is the cause of a lot of the economic issues in the world today. There are also some that claim otherwise.

        Trump is trying a different approach.

      • fajensen says:

        I’d attribute some significance to the positive exponential bend on the index graph from mid 2017 and until now.

        See, all those other dips have had had a logarithmic function leading up to the event, meaning that the market “goes tired”, whereas this latest has an e^kx curve on it, which means that probably increasing leverage on existing positions rather than more “free/sideline” money was the “force” driving prices higher..

        So far the index only corrected down to the 2016-2017 trendline, the real fun starts if it suddenly departs significantly from it, which is not this time, I think. For now, I believe the “market” will reflect off the trendline and continue up a bit further through two more rate raises just to spite the FED, then we get the 3’rd dip which goes below 2600 and reverts the trend. Then it’s going down for 2-3 years (Unless the FED wimps out as always).

      • Dar Robbins says:

        “Abnormally low interest rates filled the bubble with debt.
        A trade war is just one of many pins”.
        Dar Robbins

    • Murdoch_Mysteries says:

      I’m really happy that a person posting on a blog knows the inner workings of the White House, how President Trump thinks, undertakes analysis, and makes decisions.

      Let us all in on your secret sources of information.

      Are you one of the famous leaks?

      As stuff that happens down south really affects Canada we’d like to know more.

      • Nick Kelly says:

        Maybe all the US reporters from Washington Post, Wall Street Journal etc. are making all this stuff up. Fake news.

    • Jack says:

      Nick Kelly, not to be too picky but alongside with the Aussies, the S. Koreans, Thailand and New Zealand all fought for S. Vietnam and lost soldiers there, too.

      • Nick Kelly says:

        Thanks didn’t know that. Guess I should have guessed at least about S. Korea.
        And of course OZ and NZ were once in same force (ANZACS)

  6. Bet says:

    this pullback is a blip. What goes up hard and fast comes down harder and faster. Maybe too, what goes up abnormally will come down abnormally as well. I am going to guess a 50% retracement , from this top. Could take two to three years to bottom, who knows. If you are and have been in cash , you will be looking pretty darn smart as you will have the ammo to buy the long term low. This relentless climbing has been a totally FALSE and manipulated market and has wiped out many hedge funds and traders. There have been multiple reasons for this unrealistic climb, alot has been the free money for corporate buy backs, fewer stocks vs years ago through M&A.
    I am watching the RUT, that’s where the banks live,and they are not having a very good time. They should be going up in a higher rate environment, maybe they are holding bad debt CDOs again, or its the bond trade Small caps are in the RUT , they do not do well, in a higher rate environment. The RUT a canary to watch, and the micro caps.
    For tech, semis have been leading since 2016, they also do not like a higher rate environment. Although, I have to laugh to call these rate hikes…”high”, but it has made debt very much more expensive to carry forward. Interesting times to come indeed…..

  7. Rates says:

    Libor is moving up. That’s the big story. This trade war is nothing. The Xinhua 25 Index is barely down, it’s practically yawning. You can pick and choose other indexes but that’s the big index.

    And HKD.

    • Fergus says:


      You got that right. You can’t run an economy on taxes, loans, and wishes while spending like drunken sailors in a whorehouse. Twenty years of low interest rates to prop up the globalists dreams must now be paid for. Trade war?

      Its a term thrown around by idiots who have never seen a trade war. Worse Americans have no concept of the barriers erected against American products and the theft of its trade secrets.

      You can’t run a 21 trillion dollar debt and run an expanding welfare state. The piper is demanding his due. I prepared for this years ago and can’t wait for the crack up and pay 30 cents on the dollar like I did in 1987, 2000, 2008.

    • Wolf Richter says:

      The dollar LIBOR is going up because all short-term dollar rates are going up. See the Fed.

      • Rates says:

        Wolf, I get that Libor has to rise once the Fed starts raising, but it seems to be moving more aggresively than the Fed Funds Rate. Corporates are based on Libor right? Maybe that whole market is ready to tumble. Once the bonds go, the stock has to follow right?

        • Wolf Richter says:

          The US Treasury 3-month yield, which is considered nearly risk free, is 1.74%. The 3-month dollar LIBOR, which is based on corporate and bank lending, and is not risk free, is 2.29%, so about a spread of 55 basis points. That’s considered a risk premium. It’s wider than some times and tighter than other times, but I don’t see any problem with that. It should never be the same as the 3-month Treasury yield.

        • Smingles says:


          “That’s considered a risk premium. It’s wider than some times and tighter than other times, but I don’t see any problem with that.”

          Right, but a wider risk premium in LIBOR means banks are less willing to lend to each other, which historically is a red flag.

          As you said, the spread is roughly 55 bps. For the vast majority of the post financial crisis, it has been under 20. The last time it spiked to levels this high was the 2011 European sovereign debt crisis.

          The firm I work for believes that LIBOR spreads are blowing out due to supply and demand issues related to the debt ceiling, long-term budget needs, Fed tapering, and repatriation of corporate cash from the tax plan, and not due to stress in the financial sector. However, I’ll note that the above interpretation is the bullish interpretation, and pretty much the only one I’d ever expect to hear as we’re asset managers, and nobody earns assets by telling people the sky is falling… so I tend to take our own advice with a grain of salt.

          There are certainly pundits out there who believe that this time is not different, and rising LIBOR spreads are indicative of stress in the system particularly with regards to liquidity.

        • Wolf Richter says:

          LIBOR does not reflect actual transactions between banks. It’s based on their “opinions” of what it would cost to borrow from each other. Banks, which are awash in cash, currently don’t borrow much from each other, and there are almost no interbank loans. The St. Louis Fed discontinued tracking these interbank loans in Feb 2018. But the chart is still there and you can see how interbank loans have plunged from $400 billion just before the Financial Crisis to $40 billion now:

          LIBOR is being replaced. In the US, it will be replaced by SOFR, which actually tracks transactions and cannot be as easily manipulated as LIBOR. The debut of SOFR is in April. This is a good article on it:

        • d says:

          china and the Eu are still printing overtly and covertly ,and their CB’S buying bonds “Almost anything bonds” Overtly and covertly.

          This will overtly effect LIBOR before it effects FX values.

          2 things hold up the Eur False/Over valuation.

          The False negative hype around US debt and chinese Euro buying.

          The Eur chickens must one day come home, when they do the US $ will be looking almost like a new shirt.

          As to CNY/RMB it is still used toilet paper, printed by a Mafia, Managed by a deliberately Opaque CB, with deliberately Opaque and obviously heavily massaged State Statistics, which can, and again one day will be, devalued by a lot more than 20%, OVERNIGHT. Use it if you have to. Hold it at your peril.

  8. David Calder says:

    “Pandemic Bubble”. That phrase is probably going to replace “irrational exuberance.” Thank you for putting this in an understandable perspective. The only thing that I could figure was as long as the news was bad, rates would never go up. And now they are. Now the guess work is by how much are stocks overpriced. I wonder if that depends on how high rates will go or is this a sea change.. This feels like we’re witnessing the beginning of something never seen before.

    • Fergus says:

      If you can’t remember 2000 then you are very young.

      • Realist says:

        A major difference compared to the 2000 bubble is that the current bubble is apparently the everything bubble, back then it was the tech bubble, tech stocks at skyhigh valuation, while not so sexy smoke stack and other sectors did trade at low levels, even depressed levels.

      • David Calder says:

        You mean 2008? The Tech Wreck didn’t lead to a genuine crash like 2008. I think the Great Recession was prologue because unsustainable private debt is worse now than at anytime in US history including 1929.. Trump chest thumping about a trade being fun and easy to win isn’t helping matters but I do think Wolf nailed the real reason for major stock selloff. “Pandemic asset bubbles” If the selloff actually becomes pandemic then we’ll see something not seen since the 1930’s. That’s what I meant by not seen before because there are few that remember the stock crash and what followed.

  9. Night-Train says:

    This feels like we’re witnessing the beginning of something never seen before………. I have felt that way for quite some time. And I’m no spring chicken.

    I think a lot of the time we are lulled into a sense of false security and are shaken when events force us to come to terms with reality. In this case we are not the star of our own show, but just bit players in someone else’s. But you are right. This does feel different.

    • David Calder says:

      Google Steve Keen.. He’s a Prof at Kingston U in London and a disciple of Hyman Minsky. Keen tracks private debt and was one of the few economists who saw 2008 coming and posted up an article in Sept., 2017 where he sees similarities to 2008..

  10. Memento mori says:

    My money is on president Trump on this.
    I fully expect him once the full report regarding forced IP theft from China becomes available to threaten cancellation of all treasury holdings of China.
    Value of damages fom IP theft could be set at over one trillion easy.
    This is just the beginning and a longtime overdue. China is going down and getting a taste of her own medicine.

    • Patrick says:

      Trump could certainly do that but who (beside) the Fed would show up at the next auction to buy a single US-T afterwards?

      Full Faith and Credit -> Full Forfeiture and Confiscation.

      • Memento mori says:

        That is a such out of touch with the reality view, look at basket case countries like Greece selling 10 year bonds at 4%. US can go totally bankrupt tomorrow and start issuing new debt at 3% the next day and investors will pick it up. I bet the yield will probably be even lower.

    • David Calder says:

      China is sitting on trillions in reserve while we owe trillions and, seemingly, growing the national debt by over one trillion every six months. I don’t think China will be the one going down if Trump reneges on treasuries. Our debt would be worthless and we’d find not a single buyer anywhere in the world.

      • d says:

        In My lifetime. America has been forced to sell its Bonds/T’S in Foreign Currencies before.

        It can do it again.

        P 45 is a Professional Fraudster, and Bankrupt.

        He thinks he can renegotiate Americas Debt.

        Dont be surprised, if he does try.

        He has this horrible habit of trying to complete his: nasty, crazy, campaign Promise’s/Musing’s.

        Renegotiation of the National Debt.

        Was part of his Campaign Platform.


  11. Harvey Cotton says:

    Berkshire Hathaway stock is down to $288,755.00. #BTFD

  12. Patrick says:

    Exactly! No one was questioning the onslaught of bad economic news as long as stocks overall went up. But markets correct just 10% and now everyone’s blaming (surprise!) bad economic news. The difference being that Fed QT & tariffs much more broadly impact ‘markets’, so investors can’t stick their fingers in their ears and yell, “La, La, La” to drown it out.

    I think the appropriate response here is Schadenfreude.

  13. raxadian says:

    The short version of why Alphabet stock went down is that it has many eggs in different baskets and some eggs got rotten.

    The Pixel phones are so far losing money for example. While is not the only thing Alphabet is losing money on, it is the most visible.

    They recently bought/are buying a company that wasn’t making any money just for their patents, patents that can be used on cell phones tech. Specifically to do the thing Google/Alphabet cannot do better so far that Nokia and Nokia plus Microsoft did, very good Photo Cameras/phones hybrids. And to do other stuff like a better Google glass or something.

    This combined with everything else made the stock go down because “Google is losing money making stupid phones no one buys!”

    Of course the real reason is still because the Alphabet stock is overvalued and the Fed is changing things so they go down.

    Let’s say Alphabet bought Twitter, since Twitter is so popular that would make Google stock go up and there would be no worries about how Google can monetize it because Ads and using users information is Google thing.

    And people worries a lot less even if they get way more information than Facebook does.

    Web searches and activity online reveal way more than whatever spyware is on Facebook simply because Google has way more data on you because you use Google services and Android a lot more than you use Facebook.

    Anyway, enough about that. As far as I know Alphabet has no plans on buying Twitter.

    Tweets are public, so why buy Twitter when they already get the data anyway?

    Stocks in general will likely go down lower with a few blips on the rise, because that’s what the FEDS wants.

    Then again I don’t own the truth or can predict the future, if I could I would be becoming a billionaire instead of posting here.

    • Realist says:

      Btw, Google is apparently tweaking a government friendly version of Google for Sweden, the same way Google does for China and Pakistan. Only government approved search results allowed. Add to this pending changes in Swedish law reducing freedoom of Speech and freedom of Print, making it difficult for ordinart citizens to obtain information, only government accredited journalists will have enough access to information, what do you have ?

      This was a little of topic but it tells how certain companies work.

  14. andy says:

    I agree, if one is patient enough, and lucky enough, one may be able to get back in at the level where one got out.

  15. Blockhead says:

    Wolf, if I am not mistaken, the Feb 8 Low for the S&P is still some 50 points lower than Friday’s close of 2588, rather than the 7 points mentioned by you. Of course, it can still be taken out if the downdraft continues.

    • Wolf Richter says:

      I get my S&P 500 data from the index provider S&P Dow Jones Indices, and according to the index provider, the S&P 500 index close at 2,581.0 on Feb 8 and it closed at 2,588.26 on Friday, with the difference being 7.26 points, as said in the article.

      You can get the data here (you can also download it in spreadsheet format):

      I also double-checked Yahoo Finance and MarktWatch. And they agree with my data. So I’m not sure what you’re looking at. Maybe you got the wrong date (Feb 9 comes to mind).

      • Rcohn says:

        The closing low was 2581 on Feb 8,while the intraday low was 2532.69 on Feb 9
        The all time high was 2872.87 on Jan 26

  16. MC01 says:

    How much has FB (Facebook) lost this past week? 15%? More? Given that company’s insane capitalization and even more insane weight in portfolios I’d be tempted to say it carries a fair share of the blame.

    Dip buyers were brutally crushed after gorging on FB stocks on Wednesday. It wasn’t supposed to happen, FB was supposed to stabilize at around $170 or even recover losses. Instead it went under $160.
    I wouldn’t say nobody wants FB anymore, but there seems to be a whole lot of people waiting at the sidelines for FB to go even lower before scooping it up. The 2017 excesses, when FAANG stocks were rapaciously bought if they lost 1% or even 0.6%, seem to be be over.
    Something has definetely changed.

    • Frederick says:

      Farcebook is toast Hopefully they can find a nice cushy desk job for Zuck at Langley He’s used to doing nothing and getting rich while owing it

      • d says:


        Dont be surprised, if you find he has always had one, somewhere else.

      • Jon says:

        I am surprised about user data being exposed via FB.
        Isn’t what users wanted in the first place?

        FB is a platform built to exploit human vanity!!!

  17. marco says:

    Everything’s gonna be just fine.

    Just pull either lever in the next election.

  18. Philbq says:

    Words of wisdom: “Bull markets do not die of old age. They end when the Fed raises rates.” Enough said.

  19. Frederick says:

    Partially but I’d say it’s more like reality coming home to roost

  20. RD Blakeslee says:

    I’m an old man and I believe “What the heck happened” is unknowable, like why lemmings suddenly run enmass over cliffs or why pods of whales beach themselves.

    The older I get and the more I “know”, the more I know I don’t know.

    To me, the wisest thing to do is to AVOID the most indefinite things in life. Accordingly, I have no use for what’s known as “investing” – that is, putting money into enterprises controlled by “the other man”.

    • Vagabond says:

      I am also an old man and I agree with you totally..

      No one will look after your money.. In fact other people will figure out how to make your money theirs..

    • Robert says:

      Ditto to what Vagabond said ! And tha is not to diminish the many insightful and fact-filled comments, to this article, AS USUAL.

      A comment on being an old man: I am in the last quarter of my life, my health is average, with controllable and controlled ‘problems’, the usual. I will not complain about the normal aches and pains — and I really enjoy being old . Together, my partner and I are reasonably financially secure, even with carrying a $250K ‘post-divorce’ mortgage.

    • Javert Chip says:

      You guys must have very lumpy mattresses on top of those rapidly depreciating cash assets (Prices in 2016 are 518.6% higher than prices in 1970).

      • d says:

        And a 2016 $ buys how much less than a 1970 $???

      • Lance Manly says:

        Right now you can keep cash in a 6 month treasury for close to 2%, that is not losing money to inflation fast, with little capital risk. Now I spent the last year in European and Pacific stocks as their P/Es were better. I have bailed out of that because if the US market finally tanks under the pressure of quantitative tightening, the foreign markets will probably go down as well.

  21. keepcalmeverythingisfine says:

    Market tops are a process, usually taking several months to play out (1987 was an exception). It is not out of the question that the S&P 500 makes a new high before the bottom falls out. When to start buying? I start when the market is down 25-30% and buy over several months through the market trough. It is the most difficult thing to do when the world looks like it is going to end. Very, very difficult indeed.

    A drop in residential RE typically is driven by a job-loss recession. That is at least 12 months out from here (SF Bay Area and Seattle may see it a little sooner). Absolutely not a buyer of RE right now. There will eventually be great opportunities on quality properties, watch the employment data to time it right.

  22. aqualech says:

    Lots and lots of people are eventually going to be badly hurt as I was after the 2000 market peak.

    I look at this crazy market and think to my self that if I WERE to have invested in Bitcoin and FAANGS, I probably would be feeling the disbelief of greed and would not be smart enough to be selling at this point.

    Speculators buying on margin are probably getting out a little bit faster than the guys loaded up with ETFs in their 401ks.

  23. Bobber says:

    It’s interesting the Fed hasn’t tried to calm the markets yet. Maybe they have truly decided the market needs a spanking.

  24. JimTan says:

    Wolf – I agree that something else seems to be going on here.

    These recent market swings could also be related to a large tax liability hedge funds might owe this year. Last year there was a lot of reporting about the closing of a tax loophole which allowed hedge funds to defer many billions in tax payments for decades.

    If this loophole is officially closed, then hedge funds collectively owe these billions in deferred taxes this year. As a result, hedge funds might need to unwind billions in levered holdings before April 15th to pay their tax bill. There have been indications that some hedge funds are reducing positions, like the statement earlier this month from the hedge fund Third Point that “As far as positioning the portfolio, we’ve been in the process of reducing both gross and net, to be more nimble in what we think will be more of a range bound market this year,”.

    In this context, it’s plausible hedge fund trading programs which are trained to maximize liquidation prices over the run up to tax day might get jumpy in response to unanticipated price swings or bad news. I’d watch the market carefully between now and April 15th.

  25. David Rohn says:

    Thanks for putting things into perspective Wolf; as you point out the insane overvaluations caused by the never-before-seen low interest rates for 8-9 years has created mega bubbles: stock buybacks, stock market winnings diversified into real estate and art and other sectors as the ever-richer traded over valued assets back and forth amongst themselves, literally for years, while the middle and lower classes kept reducing their living standards to stay afloat with frozen wages and fake inflation and employment figures.
    Nobody knows yet what the effects of Trump’s tariff policy will be; when it will take efffect in a possible trade war and how extensive it s effects / responses by other countries will be. But it seems clear that the same hysterical ‘russia did it’ narrators are bent on sticking the looming economic contraction on him and his just-put-in-place policies…sad we re so poorly served by a manipulative mainstream media -apparently owned and operated by an agenda based corporatocracy that s been running the whole political system for quite some time…even sadder that people still believe the faux narratives they re being fed.

  26. RangerOne says:

    So then I would take the last 2 drops in stock to mean that the bull market is finally cracking.

    Which means that scary news for investors is more likely to cause a sell off. In that way I would agree your analysis is probably right on the nose. 1 year ago an announcement of tarrifs may not have even been a blip on the radar. Buy today it’s an excuse to reduce exposure.

    Scary shit has been happening for years and investors have shrugged it off.

    One possible crack in your statement though. How much of these sell offs is directed by algorithms at this point? And what are their primary inputs?

  27. jest says:

    That’s a smart Wolf I tell ya! After firing all the artillery , it’s now almost impossible to defend the homeland using bullets. Wasn’t it just a few months back when the General declared Victory? And said not in our lifetimes will there be another war such as this hahahha.. reminds me of the Titanic and Custer.

    • RD Blakeslee says:

      …not to mention General Jubilation T. Cornpone – “L’il Abner” – Al Capp

  28. Rates says:

    David Stockman may be the worst stock market predictor ever, but even he got this one right:

    “After you set aside all of the Western hemisphere producers, the entire EU, South Korea, Australia and sundry others, you have exempted upwards of 28 million tons of the 36 million tons of US steel imports. Except that each and every one of these steel suppliers have been invited to hire the beltway’s best lobbyists, lawyers and influence peddlers to bargain with the Donald’s henchman for the next 60 days on trade concessions in lieu of the 25% tariff.

    Oh, and then there will be extensions and extensions of the extensions whenever the bargainers appear to be making “progress”.”

    Trade War? We never knew you.

  29. Pl’n’l says:

    All eyes on the Fed. They own this.

  30. Bead says:

    Smells like FAANG troubles to me. Facebook obviously hit a bump and that’s one of the saner leaders so far as earnings are concerned. Some think Facebook is in an impossible situation, needing its users to give up all privacy and control to get best prices from its advertisers. Apple’s hit a price ceiling with their cell phones. Netflix is postponing earning money for later. The various tech monopolies are threatened by European tariffs. Tesla, another leader if no FAANG, is fast losing credibility. Market leadership had concentrated in some tech names and now investors appear to be having their doubts.

  31. pete says:

    Your 10-year S&P Chart looks like a perfect 5-wave bull market, unless u read it/interpret it another way and the whole rally is wave 1 (from 666 to 2866); and after a short-term, vicious correction in wave#2, the huge wave #3 begins!!!

    Reagan managed trade wars as did Bill Clinton, but it seems to me there’s been nothing as extraordinary as China’s admittance of her 1,000,000,000 people to ‘The Club’, since the United State after 1865….PJS

  32. LouisDeLaSmart says:

    It is very important to remember that the stock market is a grotesque warped delusional self-image of the US economy. It is therefore only an illusion, not the economy itself. So when the time comes and they ask for money and a bailout, or tax exemptions, saying “we are the economy, without us you are all dooooomed!”, turn around and let them feel the burn. It’s important to not make the same mistake twice.

    • Rates says:

      LOL. Your fellow Muricans are so unreliable, they’ll accept any poor deal.

      Here’s how the BIG QUESTION will be posed …. Debt Forgiveness for everyone?

      It will be close to unanimous and most people will be slaves afterwards since the rich will own everything outright.

      • Wolf Richter says:

        Debt forgiveness means asset destruction, dollar for dollar. Each debt is someone else’s asset, by definition. A loan owned by a consumer to the bank is the bank’s asset, dollar for dollar.

        Debt forgiveness for everyone? The super-rich own much of the assets by definition – they own Treasuries, corporate bonds, and other assets that are someone else’s debt. These assets go to ZERO when the debt is forgiven. The credit based economy would come to a complete halt. Paychecks would bounce, supplier couldn’t deliver, stores would close. So no, debt forgiveness for everyone is not going to happen.

        • Rates says:

          The super rich own much of the assets but assets are made up of liabilities + equities, and I am guessing a lot of the “super rich” are also up to their eye balls in liabilities. Jared Kushner is a good example. Heck that 3rd richest man in Germany who threw himself in front of the train during 2008 is probably a better example. Too many people are “billionaires” by virtue of leverage.

          Everyone’s gonna be made full because the government will eventually be bailing out everything including the banks.

          Now I didn’t say what that will do to the dollar. It will definitely hyperinflate in the scenario. But as we’ve seen in Germany, it doesn’t stop anyone from living.

          The credit based economy almost went to hell anyway without the 2008 bailout. Heck money market funds were losing money. Also if billionaires were to go bankrupt en masse in another huge crisis, credit will be jammed anyways.

          “Billionaires” have something to gain. Heck which “banks” would prefer to deal with huge defaults?

  33. Plumas One says:

    Feels like the president’s Working Group on Financial Markets
    (PPT) has taken a brief winter vacation. Maybe they’ve decided
    that stepping aside for a while is necessary to create some nice
    trading opportunities for the crony crowd. We’ll soon find out.

  34. Enrique says:

    Effectively the issues are 2:

    1) “Financial media” needs to come up with reason X for action of markets Y (this may or may not have anything whatsoever to do with the truth of things – to the extent there ever is such a thing); and,

    2) Here, specifically, the S&P completed a retrace down to its 200 day MA (on the daily chart).

    I’m not a big fan of technical mumbo-jumbo as being any more meaningful than what media imbeciles (not you, Wolf) routinely trot out. But trading algos do look at these things to various extent, and thus one will always see things of this sort occur.

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