December 26, 2018

The major stock market averages are attempting to recover from the worst Christmas Eve trading session since the Great Depression. At the moment, the Dow is up 400 pts and the SPX is up 2%. The consumer discretionary sector is up 3.4%, the energy sector is up 3%, healthcare & tech are up over 2%. Utilities are now losing steam after recently hitting all-time highs. The VIX Index, which spiked to 36 on Monday, is back down around 34.7. These levels, indicating heightened fear among traders, were last seen during the February stock market correction. Traders, by the way, tend to invest cash after spikes in the VIX. Most commodities are trading higher today. WTI crude oil is back up to $45.30/barrel. Gold is up .7 % at the moment, but is still down year-to-date. Bonds are mixed in early trading. Junk bonds are rallying today, but are still down around 10% year-to-date. Treasury bonds are selling off after a massive 6-week rally. The 5-year and 10-year Treasury yields are hovering around 2.58% and 2.75%, respectively.

CNBC’s coverage of the stock market selloff is no less helpful this side of Christmas. Today, a CNBC anchor noted that bond Guggenheim’s CIO Scott Minerd has predicted that the stock would fall by 40%. The reported then noted, “He’s on track to be right.” This is obviously an incredibly stupid and misleading statement. The S&P 500 Index is down about 20% from its all-time closing high of 2,930 reached on September 20th. The Dow is down about 18%. The Nasdaq is down about 22%.

Political instability—not the trade war or the Fed—is the proximate cause of the Christmas Eve selloff. Monday’s session saw the SPX down 2.7%. President Trump’s Tweets embracing the government shutdown (and using it to demand congressional funding for the US-Mexico border wall) were seen as wildly irresponsible by investors. Wall Street & political analysts are beginning to talk about the potential for impeachment when the Democrats take control of the House of Representatives in January. Of course, impeachment is not likely to lead to the president’s removal from office, but it adds another layer of uncertainty to the investing landscape. In an opinion piece today, CNBC’s John Harwood said, “…the president himself represents a fundamental problem for America’s economy and national security alike. Trump’s erratic behavior and weak leadership have unsettled Wall Street alike—and there’s every reason to expect things will get worse.” Wow. And by the way, the above-mentioned Scott Minerd says mismanagement by policy-makers is responsible for most of the stock market’s selloff. This has become the consensus view among investors.

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