Oh lordy, in a market where nothing can go wrong, Dow falls below January 2018 level.
It was a beautiful historic rally: The S&P 500 soared 25% from the low of December 24 through May 3, topping out at 2,945. The setup had been perfect, as I mentioned on December 22, Nothing Goes to Hell in a Straight Line, Not Even Stocks.
But going to heaven in a straight line is hard too. When valuations get this inflated, and this concentrated, and life is this perfect where nothing can go wrong, with endless wealth just another day away, it doesn’t take much to trigger some sell orders.
The trigger came Sunday afternoon with the now infamous tweets by Trump about saying “No” to China, an indication that the trade talks – whose string of endless successes had been hyped by the White House to supply fuel for the stock market rally — had inadvertently fallen apart, or had never gone anywhere to begin with, or whatever.
But any trigger could have done that job, after this rally.
The Dow Jones Industrial Average, which never quite made it back to its closing record of 26,828 set on October 3, fell 473 points today, or 1.8%, to 25,965 – revisiting that infamous 26,000 once again, which the Dow had broken through on the way up for the first time in January 2018.
This is the level that, on the way up, invariably triggered a presidential tweet, but not on the way down. So now the Dow is below where it had been in January 2018, and it’s 3.2% below its October peak.
The S&P 500 fell 1.65 % today to 2,884 – just about flat with where it had been on January 26 last year (2,873), and down 2.1% from its closing high on April 30 (2,946), and down 1.6% from its old closing high (2,930) of September last year. And this after is had risen 25% in a little over four months.
The NASDAQ composite fell nearly 2% today to 7,965, breaking once again below 8,000. It had risen nearly 32% from December 24 through May 3, but has now dropped 2.8% from the peak, and even after this steamy rally, it is below where it had been on August 27 last year.
The Russel 2000 fell 2.0% today to 1,582. Like the Dow, it never made it back to its peak in August last year of 1,740, and now sits 9% below the peak – despite a 25% rally since December 24.
And all this included a big bounce over the last 20 minutes of trading.
So this is no big deal. The big deal is that it hadn’t happened earlier, more often, and with a little more kaboom.
That bounce-back rally was built on nothing but vapors: The economy is growing at a rate of 3% in the entire year maybe, if we’re lucky, while earnings of S&P 500 companies were about flat in Q1, and so stocks should soar 25% in just a few months? And then should continue soaring? I mean, out of whack is out of whack.
Just how silly this market has gotten is exemplified by Beyond Meat, a 10-year old company whose fake burgers – combining the worst of terrible burgers and unrecognizable industrially processed plant substances – have been sold for years, and whose shares following the IPO have skyrocketed to give the company a market capitalization of $4.6 billion though it has persistently lost money on its fake burgers and had sales in 2018 of only $56 million.
It’s apparently easier to sell stocks in this environment than it is to sell fake burgers. So the company is now valued at 83 times revenues. This is nuts.
But that level of nuttiness only encouraged momentum chasers to drive up those shares another 6% today, on the hope they can unload them on a greater fool at a later date – which works like a charm as long as there are enough greater fools out there.
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I know. It’s very painful to watch. The Dow is all the way back to where is was 38 days ago. Next it will drop below 6500 and take out the March 6th 2009 low.
I am so relieved i am sitting safe in Treasuries. I have been able to sleep soundly all these years.
Yes, back to where it was 16 months ago. Another 16 months and you may match treasuries’ yield, who knows.
– I expect long dated Treasuries to go down as well within say 2 years. But when in those 2 years is the BIG question.
Or: Dow is all the way back where it was 16 months go, after a historic rally and a small dip. See subtitle.
That seems bit cherrypicky (what if we compare to say Jan 2017 instead of Jan 2018?).
I am not sure there has been a strong historical correlation between GDP and stock indices (https://www.macrotrends.net/2574/dow-to-gdp-ratio-chart).
I agree with your assessments, but somehow the article comes across as knee-jerky.
The Shitstorm/Tweetstorm primed everybody to short teh indexes on the opening.
Be interesting to see if his “family business” shorted it as well, and how many other times they have before he has released such market moving storms in the past.
Bright minds think alike. Am I right, or am I right.
Have you seen the news on the mainland that the CCP suppressed news of the tweets to retail investors for a whole trading day, causing many of them to suffer huge losses as they did not know what was driving the negative market movement.
I am so happy that I am in all stock for last 7 years
It’s a choppy ride but I am riding the system..
I can’t change the system but I can at least benefit from it.
I don’t have much faith in fundamentals..
I’m have booked most of.my profits and now for last 7 years I am up also 400 percent …
Oh, not to worry. It will recover. The central committee will see to that. In fact, this whole thing is probably a ploy by the White House to get the Fed to lower rates. Harassing the Chinese is just a side benefit. The President is counting on “his” economic successes in the stock market and jobs to get him re-elected. And he has made it very clear that he thinks interest rates should be lowered. So he is counting on the falling stock market to pressure the central committee into lowering the rates. After all, if it doesn’t work the White House will just announce, again, that a deal with China is imminent, the brinkmanship worked, and the market will go up again. They’ve done that about 5 times already and the market has believed it every time. Why not once more?
To win re-election, the president needs a big Chinese trade victory. He knows it. And the Chinese know it.
The Chinese were trying to run out the clock on his first term with no trade deal … they want to undermine him to increase the chance for a new president.
The president will run them down, or he does not get re-elected. This is going to be fun to watch.
I’m not sure why the Chinese would want a new president. It seems they can just get what they want by granting Ivanka Incorporated a few trademarks and patents. With both Hunter Biden and Ivanka, it seems the Chinese have cornered the market…
Even a Chinese victory could be meaningless. There was a so called victory in the US-Mexico-Canada trade deal last year but it seems like it will not get ratified any time soon. It could be the same situation, a Chinese deal that just collects dust as Congress lolly-gags
At the risk of overdoing the political side on this blog…….To win re-election (in my humble opinion) DT only has to let the “faux opposition” continue doing what they are doing” and he will slide into another 4 years easily.
This “market” is “crookeder” than the famous Lombard St. in San Francisco!
When I and my friends were younger (so far back) we “backed down” that infamous serpentine street in a 1928 Durant! Oh, those were the days!!
Are you saying every time Trump tweets, he makes millions?
Isn’t that insider trading? :-)
No worries Bob. If it’s good for CONgre$$ …..
Well, there it is! “A deal is imminent” and the stock market is headed up again. Nothing new here, same oh, same oh. Maybe this time is the time.
More to this story …
If you look at the Wilshire 5000, the all time high in SPX and NDX was not matched by a high in the Wilshire 5000. In fact, the recent Wilshire 5000 high is lower than the last two peaks in Jan 18 and Sept 18.
To take it one step further, the high water mark in FTSE All-World All-Cap stock index remains January 26, 2018.
They are clearly overmatched by the Made in the US Federal Reserve manipulate and Jawbone capabilities. From the world’s high priests of propaganda, misinformation, redirection, smoke and mirrors. Facilitated by Wall Street and news media.
How many more billions can be borrowed to fuel the stock buyback scam? Apparently, that buying is the only driving the SP500.
Despite recent highs in the S&P 500 virtually everyone sold stocks –
Institutional clients, hedge funds, and retail clients. Of course this all made possible by Corporate buybacks! The ‘C’ suite rings the cash register!
Speaking of driving, if war with Iran causes transportation nation-wide to seize-up, does that mean we can run all our autos on faux burgers … ??
Not to worry when duty calls the central banks of the world will see to it that these types kerfluffles will be smoothed out with near-zero interest rates and buying up assets.
Mark my words chaps the following major recession will involve quantitative easing of money directly into the bank accounts of weary consumers.
Simple solution. Get a cot, a portable chemical toilet, and don’t leave your desk. Just stay there until the market closes. If you have to leave your desk please text me so I can put in a quick short.
Trump could propose something dramatic to offset the damage to Main Street and to a lesser extent to Wall St. by tariffs. My favorite would be to eliminate taxes on social security benefits. Then neither party could oppose it and it would pump money into the economy although the trickle down meme would be revealed for what it is.
What are they going to pull out of the hat next?
Tax cuts already done.
Regulations already trimmed.
Unions already dismantled.
Income already concentrated tp all time highs.
Interest rates already near lows.
Limited options left to kick the can include:
-Add infrastructure spending onto national debt.
-Print money to hyperinflate.
-Allow Fed to buy stocks (nationalize)
Do I have this right? I’m assuming they won’t try anything fair or honest that would create price discovery.
An infrastructure bill of course. The rich can suck it dry, you know, those government contracts.
The US does NOT have the stomach to ignite a war in the Korean Peninsula.
Both Japan and South Korea will ( Immediately) fall into recession and drag the world into the protracted long ( 20 years at least) of depression.
So that example is only that ( a figment of a journo’s enlarged backside’s) imagination!
You can discount that from your list of scenarios.
They ignored the World Trade Center attacks, the start of Bush’s GWOT. The US had been in a recession already on Sept 11, 2001 from the dot-com bust, then slid further into recession until 2003, when Bush began beating the war drums and ramped up USG war spending (over $2 trillion worth, ultimately, all done off-budget, and pushed into the total Federal debt).
All those other war rallies happened because the US suffered NO material damage to the homeland, and was able to ramp up the USG spending for war material. As 911 showed, actual damage to the homeland in a war can be pretty devastating for the US economy (the airline industry almost collapsed for one thing). It took the Bush administration a while to recover from 911, pick out a convenient victim for its economy boosting war and then launch that sucker.
And oh, btw, Greenspan and the Fed ramped down interest rates to help boost the economy too, which, of course, let to the subprime mortgage crisis and the GFC of 2008
“price discovery” (mark-to-market) went down the tubes in April 2009 and the “markets” have not looked back since…………In my opinion that is one of the main reasons we are at this stratospheric height in the “markets”….there are no more “markets”….only “opportunities”.
There was actually very little selling today, the dip buyers stepped in ahead of the selloff, and they were there to pick up shares. Market pared half it’s losses. Buyers psychology is to wait while the market trends down, for better prices, and for sellers to wait while the market goes higher. The steady rise of prices without a pullback has put both sides on hold. The trade deal is secondary to March’s super stimulus, which could pull global markets along. It’s pretty scary really because investors are buying stocks like there is blood in the streets, and not these nose bleed valuations. IMO stocks are flight to safety and bonds are in the crosshairs.
There only has to be one greater fool- presiding over, say, 12 district branches of equally foolish fools?
So this is no big deal. The big deal is that it hadn’t happened. . . with a little more kaboom.
“Where’s the kaboom? There was supposed to be an Earth-shattering kaboom! This makes me very angry, very angry indeed.”
(Could not resist)
Marvin calling on line 2…… “the deludiam Q3 FOMC Modulator is on the way”.
Marvin The Martian!
I like the part where Bugs was turned into some kind of giant robot bunny, and eats a metal carrot, crunching into it, and says, “Aluminum carrut, lots of eye-ron!” (iron).
If the Fed comes running to the rescue of the everything bubble AGAIN, it may as well fold its tent and resign en masse.
Then monetary policy can be run directly from the WH, employing Magic Monetary Theory.
I have been drunk for the last few weeks,what the hell happened? I need to dump that AOL stock and go long on Beyond Meat.
If we go all-in barreling down the silken road to Persia, we’ll go from beyond sacks of meat .. straight on to becoming glass !
That aught to be biggly for stocks … no ?
Candidate Trump: “everyone knows this is a big fat ugly bubble”
President Trump …earlier in term: ” how do you like that stock market!!!”
Trump takes “ownership of stock market bubble”….who advised him!!!
Too bad he didn’t take a page from Reagan’s book. Fed Chair Volcker told Reagan that in order to kill inflation he would have to raise rates dramatically. The prime lending rate eventually peaks around 21% (if memory serves me right) and money market funds were paying 16 to 18%. Reagan told the american people what he was doing and blamed Carter….of course.
Trump should have encouraged popping of the bubble, get rid of the puss, dead wood and zombie companies; then allow for the building of real growth as did Reagan. Trump could have blamed Obama and even Bush till the cows came home for all the financial engineering which has caused markets, including real estate to be so out of sync with reality. By now things would be starting to turn around for some real sustained growth.
If he did that then how would he be able to work this mess into the hugest most biggest financial disastor of his con man career? Check the news out on his 1.17 billion in losses. https://www.cnn.com/2019/05/07/politics/trump-tax-returns-losses/index.html
Thank you Paulo for the link. Disclosure: I am not a fan of the R’s nor the D’s. My wife are not affiliated with any political party – has been this way for a long time. We abstained from voting for president as we did not care for any candidate. We did vote for other various offices/measures. As a retired CPA, even without the benefit of looking over the details, probably a great deal of those reported Trump Org. tax losses in the 10 year period reported were caused by depreciation – which in those days was generally more accelerated. So, there is some salt needed when we look at that.
My beef is more with the policies. Keeping with the theme of my comment above, I’d like to address the current tax cuts vis a vis the Reagan tax cuts in the early 1980’s (as I was just recently out of college and working for one of the national accounting firms).
Very simply, the Reagan cuts were very much needed as the 1970’s were a decade of malaise and stagnation. Also, these tax cuts happened when USA debt to GDP was around 36%….fast forward to now…supposedly with the economy OK, but we cut taxes, but more importantly current debt to GDP (per gov’t stats) around 105%. For this to work, any reasonable economist would say that these tax cuts need to be accompanied by significant cuts in gov’t spending. However, “we” continue to spend like sailors on leave at a house of ill repute. So, quite the opposite is going on today. Therefore, as a result, a massive debt problem with be handed to the next generations. Not only very unfair, but highly immoral !!! Bush doubled the debt level he started with, same with Obama and now Trump on track to done same. Just go the the US Debt Clock/time machine to confirm this if you like. Here is the link:
We are whistling by the graveyard….
The “US Debt Clock” is just an algo of someone’s website and not to be taken seriously. The debt of the US government goes up when new debt is issued, and it goes down when maturing debt is redeemed. This happens on scheduled days and is publish knowledge. The Debt Clock just keeps moving forward regardless of reality. But the US Treasury debt is a well-documented reality of dollars and cents, no algo needed. You can get the actual US government debt outstanding, down the penny, right here: https://www.treasurydirect.gov/NP/debt/current
The market is a bunch of computers trading with each other, they are responsible for the volume, almost all the volatility in the market. Whether they are bidding prices up or down, it is all based on how much money they have to play with. If prices are going up, then money is being injected. If prices are dropping because bids are disappearing, then you can easily surmise that money is pulling out. PE has been consolidating because the pie is getting smaller.
With volatility at zero I don’t think you can blame the computers. The money flows slowly, the selling is much quicker, to paraphrase Nash, “candy is dandy..” The buyers have lined up, (AD line makes new highs) while at times the sellers are just more aggressive. The bartender is trying to keep up, “liquor is quicker..” but they never run out.
Boeing is the most heavily weighted stock in the Dow 30. The Dow is price weighted
Boeing goes down… plus Boeing has announced no more stock buy backs and it needs to borrow 1 billion to pay their dividends. Boeing is the one to watch.
Straight up crazy from 2016 ( as were. Many others ) thanks to the tax cuts which was spent on buybacks. Watch the SOX index. Semis always the canary
Just a small point-the DJ average on 11/8/16 was 18330 or thereabouts…
“Just a small point-the DJ average on 11/8/16 was 18330 or thereabouts…”
I know. We are a lot higher now.
Will you do me a favor and tap me on the shoulder when the Non manufacturing ISM drops to 52 and unemployment climbs all the way up to 4.5% and Amazon and Google stop growing at a double digit rate.
Then i may consider joining everyone else here in sitting back and stuffing pipes and popping corn.
Dow 13,000 (or there about) might be a good time to get back into stocks.
Thx, commenters, for all the irony, sarcasm, humor, and thoughtful comments….and Wolf, for initiating this “Where’s the beef?” discussion.
For more thoughts on where the market should really be now, use the link that Wolf provides, below left, to Advisor Perspectives. There, one finds periodic analyses on market levels and market cycles.
– My personal impression is that the president of the US doesn’t have a good grasp on what the real economic issues are today. And then I am putting it in a very polite way.
I sold a couple weeks back after SPX hit another high. Paid my house off. Partly due to your article about things going to Hell in a straight line. Thank you ! Sleeping very sound now
Good for you Dave K. Excellent news.
My father in law told me when I was 24 years old, “Get your house paid off as soon as you can. It’s like you got a huge pay raise and you’ll always have a couple hundred cash in your wallet.” I did and retired in my fifties. Alas, I no longer sleep like a baby as I am always stiff and sore from working at what I choose to do; firewood, gardening, fishing, kayaking, hiking…… Oh yeah, I don’t buy stocks and never gamble. :-) However, it sure is fun following the stats and trying to look for fundamentals. I think fundamentals are like truffles.
Anyway, well done on the house.
Great words of insight. I turn 40 next week. Always been a goal of mine!
The market went from Doom & Gloom from Oct-Dec 2018 to major euphoria in a very short time span rising to new all time highs. 25% in a matter of 4 months. But nothing has changed the fact that there is something seriously wrong under the hood. What we’re witnessing now is the kind of volatility prevalent in worried market. Risk off always happens much faster than Risk on.
Despite endless rhetoric to the contrary, so many things are teetering on the brink of collapse on a macroeconomic basis. 10 years of suppression & artificial stimulus are finally taking their toll. So many things compounded together making the inevitable exponentially worse.
NYSE Composite has been telegraphing this for a while. Hasn’t come close to its Jan 2018 high (13,637). Lower highs and lower lows since.
Yet complacency still rains. Just look at the proxies for those chasing yield. JNK, BKLN and LQD all with minor losses today. When those three give way, then it’s time to start worrying.
Wolf, with all due respect to your awesomeness and editorial discretion,
in my humble opinion the stock market should ot be covered in this site, or any other serious financial journal.
Why not? The NASDAQ post 24th December data clearly indicates a market manipulation of grotesque proportions. For a market to regain 25% of it’s value in such linear fashion in less tehn 5 months is a joke. Hence, the stock market is a joke. As an indicator they are worthless. They do not abide by market logic, and with automated AI transaction systems they have become independent of market performance. Any analysis of this rigged data is a waste of time.
The PPT has never gone away. Its still operating, and we will never know how many trillions have been burned, keeping this puppy propped. I’d estimate at LEAST, $56 trillion has been burned since 2008, just to keep the US market propped, and not including the proppage from the JCB, the ECB, or China. Its ALL been hidden via dark pools, derivatives, and government accounting chicanery, that would make even the smartest PHD economists heads spin.
That is how you can have valuations on utter crap like Fake Booger (Burger) companies, trading at 83 times revs.
“fair value” (whatever the hell that could be nowadays anyway) for the Dow, is probably around 1,000, given all the debt out there globally, and using some truer accounting methods that existed before 1990. And You’re goofy if you actually believe a clown like Bezos is worth $161 billion. His company is going collapse the hardest, and worst of ANY company out there. Its layers of fraud on top of fraud.
“It’s apparently easier to sell stocks in this environment than it is to sell fake burgers. So the company is now valued at 83 times revenues. This is nuts.”
One really wonders how long can investors maintain delusional thoughts?!
The premise of obtaining fair profits from a sound business is gone forever it seems.
This entrenched “ Culture “ of selling deception and lies has corrupted otherwise ( average Fair and honest) people & lead to the great majority of the now (classified) as underclass to be totally despondent, aimless and on a continuum of boiling eruption!
I read a story recently of a ( tourist that fell into the caldera of a Hawaiian volcano trying to get a “ better “ glimpse of it)!
Is that a metaphor for all of us looking at the state of our Economy?!
Will we be rescued like the Lucky chap?
as one of the comments suggested ( money for nothing in everyone’s bank account)!
If anything I see that “ unless we have a Dow at 17000” or slightly under we are all looking pretty much at an equivalent to a kilauea volcano.
But that level of nuttiness only encouraged momentum chasers to drive up those shares another 6% today, on the hope they can unload them on a greater fool at a later date
If I was running this trade, I would have the “meat”, the real money, in derivatives on the stock because derivatives gives immense leverage without risking the margin call. Being probably a Very Large Investor, I would then exploit the options leverage by trading enough of the stock.
If I maybe I didn’t want to be linked to the options portfolio for tax- and other purposes, I’d have the options-side in the unregulated derivatives market or maybe trade “the dark portfolio” via an LLP.
I.O.W.: Only sane purpose of those robots piling into a Unicorn stock would be to get a good price for the derivatives portfolio, short time Calls, for the longer time some really cheap O.T.M. Put’s.
Having said all this, I shall predict: The Uber IPO will go up, up and up like a rocket, Early Version Ariane 5 more specifically!
Naturally. The world doesn’t change before your eyes. It changes behind your back.
Welcome to “Quantum World”. That magical place where we are totally screwed and golden at the same time!
Maybe stocks are selling to raise money to buy UBER