Sold American

(Musical accompaniment by Kinky Friedman)

I toyed with titling today’s piece “FAFO”[i], because that seems to be how global investors are treating the President’s attempts to influence Federal Reserve policy, if not threatening the Fed’s independence outright.  We shouldn’t underestimate how important many of our institutions are to international investors. Those include a nonpartisan judiciary and a central bank that is immune to political meddling.

We have been expressing concern about the potential end to American exceptionalism – at least from a markets standpoint – for some time.  In early March we joked that Mr. Market’s long-time love affair with “TINA FOMO” was threatened by his recent flirtation with “TIA MOMO”, effectively jilting the long-held idea that “There Is No Alternative” to US stocks to become “There Is an Alternative”, and that “Fear Of Missing Out” had been replaced with positive momentum trends elsewhere.  Then last week, we outlined our theory that “foreigners have been voting” in US markets, and asserted that the combination of rising bond rates alongside a weaker dollar provided the evidence. 

Although the bond market indicated a steepening yield curve rather than another flight from US bonds, major US equity indices and the dollar sold off overnight.  That continued into the market open as international investors digested Thursday’s comments about Chair Powell by President Trump.  Those had made little impact as the week came to an early close, which I noted at the time (about 2pm EDT). To be fair, no one paid attention to my comments either…

But after a weekend to digest those statements and others, global investors fretted.  Furthermore, the President launched another barrage at Powell mid-morning, calling him a “major loser”, among other criticisms.  That led to a round of renewed selling, which should be obvious on the chart below:

SPX Intraday, 1-Minute Bars

Source: Interactive Brokers

Past performance is not indicative of future results

The selloff is quite broad-based, with every S&P 500 (SPX) sector trading lower at this point in the session.  NYSE decliners are outpacing advances by about 6:1, and only a handful of SPX stocks – 19 to be exact, right now – are currently higher on the day.  Interestingly, tech stocks are not faring particularly worse, with the Nasdaq 100 (NDX) falling by roughly the same amount as SPX.  This is a departure from other recent selloffs when NDX markedly underperformed. 

I had harbored some hope that the selling would reverse once the European markets closed at 11:30 EDT.  That occurred two Fridays ago, when a selloff ended as European investors went home for the weekend, so we will see if that applies once again this afternoon.  As of now, that does not appear to be the case, though the waves of selling have at least abated for now.  But -3% selloffs in SPX and NDX are hardly enjoyable.  We can try to blame international investors for today’s sloppy markets, but their angst was generated right here in America.

[i] For those unfamiliar with that acronym, it stands for “F(ool) Around and Find Out”, except that it’s a different four-letter F-word that I can’t use here.