It was supposed to be a blockbuster day for stocks, if not so much for bonds, and it started off well.
One hour after the BLS reported the strongest growth in average hourly earnings in 9 years…
… stocks started off strong, even if the performance through mid-day left something to be desired.
The early rebound was driven by tech stocks, with a rebound in the battered semis and chip sector…
…helping FANGs reverse two days of sharp declines, at least in early trading.
Treasury yields showed more enthusiasm, with a sharp bond selloff after the bell sending 10Y yield to 2.95%, after opening at 2.88%. The move was matched across the curve, even if yield curve remained perfectly flat intraday and was last seen fractionally lower.
However the pleasant mood in the market was promptly spoiled just around noon, when Bloomberg carried over comments from Trump aboard Air Force 1, in which the president threatened to impose an additional $267BN in tariffs on China imports, in addition to the $200BN already contemplated, capturing virtually all Chinese exports. The latest salvo from Trump in the trade war rattled U.S. stocks a day after top American executives made a last-minute push to convince the president to not impose fresh tariffs. The result in the Dow Jones was instant, sending the multi-national heavy index tumbling by 100 points. At its low point, the Dow was down nearly 180 points…
… although as the day progressed, and as traders realized that the big “risk-off” event of the day, Trump’s announcement of $200BN in new Chinese tariffs, would be delayed, stocks recouped much of their losses, and the Nasdaq was virtually unchanged after peeking into the green on a few occasions.
The dour mood returned shortly after 3:30pm however, when Apple announced that it would likely be hit by the Chinese sanctions:
Although even fears that Apple margins would be impacted failed to put too much pressure on stocks, and the S&P never really moved too far below the unchanged line.
Earlier in the session, dollar weakness helped emerging-market stocks snap seven days of declines while a gauge of currencies also rose.
The rebound, however, will be brief as today’s surge in the dollar which guarantees at least two more rate hikes this years, and potentially more in 2018, means that the pain for EMs will return as soon as Monday.
In summary, another day of whiplashes, in which Trump proved that with one phrase he can crush sentiment on a moment’s notice.
Meanwhile, as LPL Financial ‘s Ryan Detrick tweeted this morning, it’s been a tough start to the month of September for the S&P 500, which has fallen for the fourth day in a row. This is notable, because as he notes, “going back to the Great Depression, only two times did it start down the first four days. 1987 and 2001.“
And, as Bloomberg shows, a 20-year seasonality chart bears that out, with “2018 a far cry from recent history.”
Which is troubling for hedge funds, because as Nomura showed earlier in the week, September has traditionally been a month of two-halved: a strong first half, and then a slide in the second.
It may be the case that have decided to skip the first half and go straight to the selloff.
Finally, it’s worth noting that just hours after Elon Musk gave a controversial interview in which he showed off his flamethrower and smoked pot, first Tesla’s Chief accounting officer quit after just one month on the job, followed immediately by an announcement that Tesla’s head of HR would not be returning to the company. The news sent TSLA stock plunging as much as 10%, its biggest one day drop in 2 years…
… While Tesla bonds plunged to the lowest on record.
Is the long-overdue bursting of the Tesla bubble emblematic of the sentiment shift in the market in general? Tune in next week and find out.