Stocks Move Violently As Traders Fear A Trade War & The Hawkish Fed

The S&P 500 crashed Thursday morning. It bottomed at 2,624 at 11:30 AM which was a 2.83% decline. It rallied in the afternoon to close down only 0.15%.

Many of the bulls may feel like that’s a sign of a reversal. But I think it’s a sign the market is still in correction/bear market mode. These volatile swings occur when the market is falling. The biggest up days occur in bear markets.

S&P 500 needs to fall 2.35% to get to its November 23rd low. Nasdaq outperformed the S&P 500 throughout the day as it was up 0.42%. Russell 2000 fell 0.23%. VIX was up 2.15% to 21.19. The CNN fear and greed index fell from 20 to 15 which signals extreme fear.

Trade Uncertainty Grows

Traders are skeptical of the trade deal with China especially since the CFO of Huawei was arrested. In China’s statement some of the details on the 90 day agreement to negotiate without tariffs being raised were different than in America’s statement.

As you can see from the table below, the 90 day deadline wasn’t mentioned by China. America didn’t mention bilateral visits while China did.

China mentioned America respecting the One China policy while America didn’t. This brought a huge level of uncertainty to the potential of a deal. When investors can’t handicap the possibilities, they sell now and ask questions later. Both China and America are seeing economic growth slow.

China’s Composite PMI was up from 50.5 to 51.9 in November, but the overall trend is down. Both sides will benefit from a deal.

Sector Performance

I have been following Rollins stock closely because of its high valuation. The firm is in the slow and steady pest control business, but trades at a 60 PE multiple. Something finally gave out on Thursday as its stock fell 5.65%.

Amazon stock led the market out of its crash as it was up 1.85%. With Apple and Facebook weak, Amazon and Microsoft need to do the heavy lifting to push the market higher.

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