How to Respond to a Sucker Punch
Friday, August 21, 2015
(This is Mark Vickery covering for Sheraz Mian, who is out until mid-next week.)
Our table had been set yesterday morning for a down trading day: the release of Fed minutes the afternoon before indicated similar concerns about the health of the Chinese economy even before the People’s Bank devalued its currency last week, and oil prices zeroing in on the psychologically unnerving $40 per barrel emboldened bears to bring their sharp claws out.
Because even among a recent string of weak data — following Q2 earnings season, which itself was no great shakes — larger market trends still indicate a bull market overall. U.S. jobs, health care, homebuilding — there are plenty of places where real growth is happening and have little to do with fears of a teetering China. Odds are still decent the Fed will increase interest rates a quarter-percent at its meeting next month, and it wouldn’t even entertain this idea if the sky was truly falling.
Which is why yesterday’s trading session felt like a real sucker punch. Routine record market levels had allowed bulls to laugh off bearish concerns for so long it felt like a habit. But now investors are starting to listen to those who say the bull market is finished.
We don’t think it is, but between China and falling oil prices, sectors like Technology and Industrials have been taking a real beating. And everyone holds these equities, so everyone has felt the pain.
Perhaps the best course to chart is one of relative stability. This goes for Fed news, as well, which — even though a plunge in the stock market might indicate another delay in the initial interest rate rise — may actually improve the odds of a quarter-percent boost in that it will remove a layer of uncertainty. Firm language from Janet Yellen would further help stabilize the trading environment, at least in the U.S.
The S&P 500 and the Dow are currently in negative territory year to date. The Nasdaq remains positive, but is down 6 1/2 percent from its highs just six weeks ago. And futures this morning aren't pretty. So try to grab a rock and hang on.
Mark Vickery
Senior Editor
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