Is Uncertainty Back In The Mix So Soon?

While it may sound strange, perhaps the best word to describe the market action on Monday is, disappointing. Yes, the Dow Jones Industrial Average popped 288 points. The S&P 500 gained 1.1%. The Nasdaq 100 surged 1.5%. And oil jumped 5%. Yet, based on the early indications from the futures and some of the developments of the day, the end result left something to be desired.

With the two big, bad fears that had been the primary drivers of the recent correction - fears that the Fed would overshoot and the trade war with China would become a drag on the global economy - appearing to be resolved, investors came into Monday morning in a good mood. Stock futures had been pointing to a gain for the Dow of more than 450 points. And based on the way the trend-following algos tend to "chase their tails" on days when the indices experience outsized moves, one might have expected the early gains to build as the day wore on.

But instead of traders falling all over themselves to cover their shorts, add some exposure, and put risk back on, we got the opposite. Exactly one minute after the stock market's opening bell rang, the sellers attacked. And by 11:47 am EST, the venerable DJIA had given back 306 points of the day's gain. Heck, at one point, both the Russell 200 and S&P Midcap indices were red on the day. The word you are probably looking for is, ugh.

What Gives?

So, what gives here? Why was good news not viewed as such? Why weren't the sellers overrun with buy orders? After all, Powell had talked nice and Trump had made a "deal" with China. And since the outlook for the U.S. economy, and, in turn, corporate earnings, both should improve given these developments, why weren't stocks "melting up?"

The answer, in short, appears to be, uncertainty. It turns out that official reports from the White House and China didn't exactly jive with the Trump tweets declaring that a great deal had been struck. China also wouldn't confirm the report that they were going to back off on auto tariffs. As such, some doubt began to creep in on the prospects for a trade deal to actually get done.

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Disclosure: At the time of publication, Mr. Moenning and/or Sowell Management Services held long positions in the following securities mentioned: none. Note that positions may change at any ...

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