November 26, 2018

The major stock market averages jumped at the open (Dow +300 pts; SPX +1.25%). In an 180-degree turn from last week’s action, the market’s tenor is clearly risk-on today. Utilities, real estate and consumer staples are in the red, whereas financials and consumer discretionary sectors are all up over 2%. The VIX Index fell back under 20. European stock markets are poised to close about 1% higher. And China is one of the only markets to have declined overnight. WTI crude oil is trading up 2.5% to $51.70/barrel. Bonds are mixed in today’s session. Treasury yields ticked up, causing modest price declines. But junk bonds are moving slightly higher.

CNBC’s Jim Cramer has joined the rising chorus of traders calling this a “bear market.” Of course, a bear market by definition is one in which major stock market averages (like the S&P 500 Index or Dow) fall more than 20%. He is altering that definition quite a bit. “Who cares about the S&P? It’s individual stocks that are down 40 or 50 percent.” He reminded viewers that he’s been bearish on stocks since Federal Reserve Chairman Powell’s speech last month pledging more interest rate hikes. Mr. Cramer’s view is that the economy isn’t strong enough to handle higher interest rates, and it seems like he’s been channeling his 2008 self in order to scare the Fed into pausing its rate hikes. In other words, his panic seems a bit contrived. Up until last week, Mr. Cramer’s consistent message was that after December’s expected hike, the Fed needs to pause for a while. Then, suddenly, he’s saying investors should sell stocks if they think the Fed will hike in December. Now, it is true that a few individual stocks within the S&P 500 Index are down more than 40% from peak levels. Here are some of them: Wynn Resorts, the homebuilders, Devon Energy, Haliburton, video game developers, Freeport-McMoRan, Applied Materials, and Nvidia. At present, the total number of stocks down 40% or more in the S&P 500 is roughly 20. My point to all of this is that when markets get choppy and unpredictable, traders and commentators get agitated and their messaging often becomes confused and even misleading. Today, Bloomberg ran an opinion article highlighting the panic with which traders have responded to the current stock market correction. Columnist Brian Chappatta says, “Last week showed you all you need to know about how traders and investors instinctively react when markets get choppy. They’re dazed, confused and quick to cast blame.”

Wednesday, Fed Chair Jerome Powell is scheduled to give a speech to the Economic Club of New York. Investors will be hanging on every word that proceedeth out of his mouth.

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