The SPX got up to 2940 and there was a mountain of supply waiting to meet the demand and it hardly traded at that level for more than an hour before promptly going back down to the middle of the range. The new range in this post-shock market is roughly SPX 2830 to 2940. I don't foresee a bigger move down during this pullback solely because of the immense strength of the bond market. Bonds are providing a super hedge for stock/bond mix portfolios and have kept equity investors from becoming rabid sellers. The news looks horrible: intensifying US/China trade war, recessionary economic data coming out of Germany, continuous Hong Kong protests, and a Fed that is still not as dovish as the market wants. Yet, we are at SPX 2875, less than 5% from all time highs. Eventually the fundamentals will come to bear on this stock market, but only after the bond market gets weaker. And there are still no signs of that happening.
I don't expect a US China trade deal unless Trump totally capitulates and gives everything that China wants. And that is very unlikely. China will definitely not budge from their position, their stance has become hardened and they will become more difficult to deal with as the days go by. China is in no rush, and would prefer to wait out Trump. As for Trump, he will only make a weak deal if he sees the US stock market act much weaker, a 5% pullback doesn't get his attention. Its got to be another December 2018 type of correction for him to at least consider capitulating to China.
Despite this negative trade war view, I would not be surprised to see the SPX make another move towards 3000 within the next few weeks. I just don't view the trade war as being that big of a deal, its definitely much less important to the stock market than the bond market. And the bond market is very supportive of stocks here. I am not bullish now, but am definitely not bearish. There are better spots and probabilities to pick from on the short side, so I am waiting. The time for a longer term bear raid is still ahead of us.
Posts
5 comments:
You don't therefore see a second leg down to 2720 area then?
I doubt we will get much lower than 2800, the bonds are just trading too strong and acting as a perfect equity hedge.
Because of no way for hedging, a real downard movement will be occur when the bonds are collapsing with SPX? Do I understand rightly?
(But.....how about the golds??)
The real down move will occur when bonds do not provide a good hedge (when bonds don't move much when stocks go down). Gold is a very small part of investor's portfolios and don't affect stocks. Bonds and stocks affect each other greatly.
Thanks a lot for kind answer!!! =:)
Post a Comment