Stocks Clobbered As US-China Trade War Heats Up

Today's tired showing by stocks, globally, demonstrated just how fragile the world's economic system is and how easily the best laid investment plans can go awry.

After President Trump announced plans for $50 billion in tariffs on Chinese imports and the Chinese countered with $50 billion of their own on US goods, Trump upped the ante by calling on his main trade representative to prepare another $200 billion in Chinese goods to be tariffed, should the Chinese actually go through with their retaliation.

As usual, the Dow Jones Industrial Average took the brunt of the day's carnage, shedding more than one percent, while the NASDAQ and S&P showed smaller percentage losses. The decline was the sixth straight for the mighty Dow, which has been under pressure since February of this year and is now even for the year (-19 points).

The other averages have fared better, but 2018 is not shaping up to be a year of excessive profit for equity investors.

Amid the chaos, bond yields continued to fall. The rush to safety is accelerating as the yield curve flattened even more through the day. The spread on the 2s-10s is now just 35 basis points, 5s-30s held steady at 25, 2s-30s are at 48, down one more basis point, the tightening spread making it more and more difficult for financial institutions to generate alpha, or profit, but the herd is heading in one direction and it's toward a recession.

As far as President Trump's intentions are concerned, "the Donald" is perfectly aware of what he's doing. By imposing steep tariffs on foreign goods he will bring most of the planet to its knees and likely cause a recession, though the timing couldn't be more perfect in political terms.

If a recession occurs within the next six to nine months, it would likely be over well before the next presidential race heats up in 2020. Figuring on a recession beginning in January or February of 2019 and running the average of 16 months, the economy would be on the upswing by July or August 2020, giving the president plenty of time to explain how some pain was necessary to restore vibrancy and a level playing field to the US economy.

It's not balderdash. It's the art of the deal.

And thus, with today's losses, more than two thirds of the gains made earlier in the month have been eviscerated.

It's only money.

Dow Jones Industrial Average June Scorecard:

Date	Close	Gain/Loss	Cum. G/L
6/1/18	24,635.21	+219.37	+219.37
6/4/18	24,813.69	+178.48	+397.85
6/5/18	24,799.98	-13.71	+384.14
6/6/18	25,146.39	+346.41	+730.55
6/7/18	25,241.41	+95.02	+825.57
6/8/18	25,316.53	+75.12	+900.69
6/11/18	25,322.31	+5.78	+906.47
6/12/18	25,320.73	-1.58	+904.89
6/13/18	25,201.20	-119.53	+785.36
6/14/18	25,175.31	-25.89	+759.47
6/15/18	25,090.48	-84.83	+674.64
6/18/18	24,987.47	-103.01	+571.63
6/19/18	24,700.21	-287.26	+284.37

At the Close, Tuesday, June 19, 2018:
Dow Jones Industrial Average: 24,700.21, -287.26 (-1.15%)
NASDAQ: 7,725.58, -21.44 (-0.28%)
S&P 500: 2,762.57, -11.18 (-0.40%)
NYSE Composite: 12,637.23, -71.40 (-0.56%)

Dow Losing Streak at Five Days; NASDAQ Resistant to Reality

After losing 84 points on Friday, the Dow extended its losing streak to five days, shedding 103 points to open the trading week. The total loss since June 11 is nothing to get excited about, a mere 335 points, less than 1 1/2 percent, but the lows set in intra-day trading both Friday and Monday were successively deeper.

Friday's low of 24,902.01, was exceeded Monday at 24,825.77, which was set just minutes into the session. The pattern of lower lows and lower closes over the past five sessions is a worrying sign to macro market watchers.

While the Dow slides, the NASDAQ continues to hold its own or make new gains, though the opening on Monday was ugly, with the NAZ down 70 points just after the bell. Today's tiny gain failed to excite anybody but the most committed bulls, who may be charging into a classic trap, with declining volume and indications from the Dow that aren't exactly encouraging.

This week got off to a poor start and there is little in the way of data to support any kind of news-driven uptick. It may turn out to be one of the duller weeks of the summer, which officially begins on Wednesday, June 20.

What's driving investors into speculative positions in the NASDAQ is the lack of positive returns from either Dow stocks or treasury bonds. The former appears too risky, with dividend yields ranging from 1.75% to 2.75% on the individual components, while the bond market continues to defy the Fed, as the 10-year note refuses to bang through the three percent mark.

Bonds barely budged today, but the yield curve tightened as the two year bill yield added one basis point to 2.56, and the 10-year slipped to 2.92, leaving the 2s-10s spread at a decade low 36 basis points.

That's a notable number, as the last time the spread was so slim was in 2007, just prior to one of the worst financial crashes in market history. As is sometimes quoted, "history may not always repeat, but it does often rhyme." Treasuries seem to be rhyming well with conditions prior to the GFC. Unrestrained credit, high leverage, overvaluation prominent in financial assets. In 2007, it was mostly hard assets, i.e., houses, that were rocketing in value. Today's only difference is that it's now stocks which are out of bounds for all but the most speculative players and plungers.

Dow Jones Industrial Average June Scorecard:

Date	Close	Gain/Loss	Cum. G/L
6/1/18	24,635.21	+219.37	+219.37
6/4/18	24,813.69	+178.48	+397.85
6/5/18	24,799.98	-13.71	+384.14
6/6/18	25,146.39	+346.41	+730.55
6/7/18	25,241.41	+95.02	+825.57
6/8/18	25,316.53	+75.12	+900.69
6/11/18	25,322.31	+5.78	+906.47
6/12/18	25,320.73	-1.58	+904.89
6/13/18	25,201.20	-119.53	+785.36
6/14/18	25,175.31	-25.89	+759.47
6/15/18	25,090.48	-84.83	+674.64
6/18/18	24,987.47	-103.01	+571.63

At the Close, Monday, June 18, 2018:
Dow Jones Industrial Average: 24,987.47, -103.01 (-0.41%)
NASDAQ: 7,747.02, +0.65 (+0.01%)
S&P 500: 2,773.87, -5.79 (-0.21%)
NYSE Composite: 12,706.73, -27.91 (-0.22%)

Weekend Wrap: Trump Tariffs, Fed Funds, Draghi and ECB Dominate Markets

The prior week was expected to produce shock waves in markets, but on the US stock exchanges, the reaction was rather muted.

While the Dow put in a loss for the week, the NASDAQ surged to new all-time highs and the S&P 500 finished the week nearly unchanged.

Most of the reactive trading happened elsewhere, in the forex, bond, and commodity markets, which witnessed major swings in the aftermath of a rate hike by the Federal Reserve and an announcement of the end of QE by Mario Draghi of the ECB. The latter seemed to cause more impact, as Draghi set a timetable for the end of monetary easing at the end of 2018.

All of the European bourses closed lower on Friday in response to Draghi's announcement.

The dual central bank announcements overshadowed President Trump's successful negotiation with North Korea. Trump's meeting with Kim Jong-un resulted in an agreement between the two countries for more normalized relations, setting a framework for denuclearization by the North Koreans and suspension of war games conducted jointly by South Korea and the US.

Also igniting markets was President Trump's refusal to sign off on the G7 memorandum, following a meeting with "friendly" nations in which Trump promised tariffs on all manner of imports from the likes of Italy, Germany, Japan, Canada, France and Great Britain. Before that news even died down, with the other G7 nations promising retaliatory tariffs, the President slapped another $50 billion in tariffs on China, with the Chinese responding with tariffs on US imports.

With so much news crowding into one week, it was not easy for investors to find a path of least resistance. Along with Europe, US stocks fell off sharply on Friday, but recovered most of the losses by the close of trading for the week.

After the Fed raised the federal funds rate by 25 basis points on Wednesday, the yield on the 10-year note briefly crossed the 3.00% line, closing at 2.98 on the 13th, but falling back to 2.93% by Friday, the 15th of June. More importantly, the spread between the five-year and the 10 dropped to just 12 basis points, as the five-year note finished the week at 2.81.

Spreads were compressed, with the 2s-10s at 38 basis points and 2s-30s at 50. The 5s-30s spread was 23 basis points. These are the lowest spreads recorded since 2007, just prior to the Great Financial Crisis.

The Euro got crushed in currency markets, while gold and silver - both of which had been rallying all week - were crushed during Friday's COMEX session, with silver taking the brunt of the selling, off four percent, from a high of 17.30 per troy ounce on Thursday to a low at 16.40 on Friday before recovering slightly to close at 16.54. Gold was over $1300 per ounce on Thursday, but was slammed to a six month low at $1275 on Friday.

For more detail on the explosive week in precious metals and beyond, Ed Steer's weekly commentary can be found at the GoldSeek site, here.

Doug Noland's weekly Credit Bubble Bulletin commentary, detailing the recent movements in credit and currencies is titled "The Great Fallacy".

Dow Jones Industrial Average June Scorecard:

Date	Close	Gain/Loss	Cum. G/L
6/1/18	24,635.21	+219.37	+219.37
6/4/18	24,813.69	+178.48	+397.85
6/5/18	24,799.98	-13.71	+384.14
6/6/18	25,146.39	+346.41	+730.55
6/7/18	25,241.41	+95.02	+825.57
6/8/18	25,316.53	+75.12	+900.69
6/11/18	25,322.31	+5.78	+906.47
6/12/18	25,320.73	-1.58	+904.89
6/13/18	25,201.20	-119.53	+785.36
6/14/18	25,175.31	-25.89	+759.47
6/15/18	25,090.48	-84.83	+674.64

At the Close, Friday, June 15, 2018:
Dow Jones Industrial Average: 25,090.48, -84.83 (-0.34%)
NASDAQ: 7,746.38, -14.66 (-0.19%)
S&P 500: 2,779.42, -3.07 (-0.11%)
NYSE Composite: 12,734.63, -37.32 (-0.29%)

For the Week:
Dow: -226.05 (-0.89%)
NASDAQ: +100.87 (+1.32%)
S&P 500: +0.63 (+0.02%)
NYSE Composite: -97.43 (-0.76%)

Dow Lower, NASDAQ Higher; Which One Is Right?

There's been an interesting dynamic to the market over not just the past few days, but for the past six months, though it has become somewhat pronounced recently, and that is the divergence between the staid, centered 30 stocks that comprise the Dow Jones Industrial Average and the thousands which populate the NASDAQ composite exchange.

Whenever the Dow is up, it's almost certain that the NASDAQ will produce gains as well, but, when the Dow is lower, the NASDAQ is often higher, which means there are not only some major differences of opinion on which stocks to own, but also on the general nature and direction of the economy.

It appears that those invested primarily in Dow stocks are probably more conservative in their investment approach, primarily due to the collective pre-eminence of the Dow components and the fact that all stocks in the Dow pay dividends.

The NASDAQ has always been more of a speculator's paradise, where some of the best new technology, finance, energy, and medical stocks reside. It's also home to many smaller firms with limited histories and even more limited earnings records. In fact, many stocks listed on the NASDAQ don't have any earnings at all. Those are fledgling enterprises operating at a loss, a not unusual circumstance, but one of which many funds and investment advisors steer clear.

To say that stocks traded on the NASDAQ are possibly of lower quality long term and risk-sensitive would be an understatement. Consider the leading percentage gainers in today's big move to yet another all-time high.

Destination Maternity (DEST), Etsy (ETSY), Nightstar Therapeutics ADR (NITE), iQIYI ADR (IQ), and Dropbox (DBX) were the five biggest gainers.

Of those, maybe you've heard of Etsy and Dropbox. The others? Probably not. That's where the speculators are playing.

Not only is the NASDAQ home to new ideas and new companies, many of the big tech names are listed there. The top 20 most actives today included the likes of Intel, Cisco, Comcast, 21st Century Fox, Apple, Netflix, Microsoft, Facebook, and Zynga, a pretty good sampling of large, established entertainment and media companies.

Apparently, the NASDAQ is where the action is, as it has outperformed the Dow quite handily this year.

The Dow still carries the weight of the world, though, and it's been sluggish.

Which one is on the correct path? Absolutely, time will tell.

Dow Jones Industrial Average June Scorecard:

Date	Close	Gain/Loss	Cum. G/L
6/1/18	24,635.21	+219.37	+219.37
6/4/18	24,813.69	+178.48	+397.85
6/5/18	24,799.98	-13.71	+384.14
6/6/18	25,146.39	+346.41	+730.55
6/7/18	25,241.41	+95.02	+825.57
6/8/18	25,316.53	+75.12	+900.69
6/11/18	25,322.31	+5.78	+906.47
6/12/18	25,320.73	-1.58	+904.89
6/13/18	25,201.20	-119.53	+785.36
6/14/18	25,175.31	-25.89	+759.47

At the Close, Thursday, June 14, 2018:
Dow Jones Industrial Average: 25,175.31, -25.89 (-0.10%)
NASDAQ: 7,761.04, +65.34 (+0.85%)
S&P 500: 2,782.49, +6.86 (+0.25%)
NYSE Composite: 12,773.15, -12.30 (-0.10%)

Stocks Slide After FOMC Raises Federal Funds Rate

As was widely expected, the Federal Open Market Committee (FOMC) of the Federal Reserve issued a policy directive to increase the federal funds rate to 1.75-2.00%, marking the seventh rate hike in the current cycle, bringing interest rates further toward normalcy while inching the economy closer to recession.

As every recession one the past 40 years has at least partially been aided by Fed rate increases, this time is no different, as the FOMC issued the second 25 basis point increase of the year, with prospects of another 50 basis point increase through the end of the year.

Conjecture has been steady that the Fed would hike rates either three or four times in 2018. Today's hawkish tone indicated that four equal 25 basis point increases is the most likely outcome, with 25 basis point hikes in September and December.

Stocks were wary going into the June meeting, which concluded today at 2:00 pm EDT and was followed by a press briefing from Fed Chairman Jay Powell, who did little to allay fears that the Fed would continue its reckless path in the face of what can best be called tepid economic data.

After the first rate hike in February, stocks nosedived, and they did a prelude to an encore performance after the announcement, though the losses were contained and ganged into the final few minutes of trading, the Dow suffering the biggest percentage decline and a nearly 120-point selloff.

The bond market took the news in stride, with the 10-year note barely budging, continuing to nose around the 3.00% yield level. Silver was the unanimous winner of the day, as gold's little sister initially fell, but then shot up 25 cents, ending the day one $17.00 the ounce for the first time since mid-April.

What lies ahead for markets the remainder of the week is an assessment of inflation (both CPI and PPI were up sharply in the most recent disclosures) and the overall economy. With trade wars looming larger than ever and productivity stalled, there exists a very good chance that a recession could be in the cards within the next six to 12 months, while scores of analysts weigh in on the dubious nature of the government's official gauges of inflation, unemployment and GDP.

Thursday's trade promises to be choppy, as sentiment is leaning toward being equally split between a bullish and bearish stance on stocks. Valuations maintain their loftiness, but money has to flow somewhere, and there are still plenty of fund managers looking for further gains this year.

Dow Jones Industrial Average June Scorecard:

Date	Close	Gain/Loss	Cum. G/L
6/1/18	24,635.21	+219.37	+219.37
6/4/18	24,813.69	+178.48	+397.85
6/5/18	24,799.98	-13.71	+384.14
6/6/18	25,146.39	+346.41	+730.55
6/7/18	25,241.41	+95.02	+825.57
6/8/18	25,316.53	+75.12	+900.69
6/11/18	25,322.31	+5.78	+906.47
6/12/18	25,320.73	-1.58	+904.89
6/13/18	25,201.20	-119.53	+785.36

At the Close, Wednesday, June 13, 2018:
Dow Jones Industrial Average: 25,201.20, -119.53 (-0.47%)
NASDAQ: 7,695.70, -8.09 (-0.11%)
S&P 500: 2,775.63, -11.22 (-0.40%)
NYSE Composite: 12,785.75, -58.96 (-0.46%)