The major stock market averages sank at the open, following on yesterday's rout. The Dow and SPX are down 350 pts and .6%, respectively, at the moment. The cyclical sectors--industrials, consumer discretionary, financials, energy and materials--are all down about 1% in early trading. Only consumer staples, telecoms and utilities are in the green. The VIX Index is back up over 25 and VIX March futures are up around 21. Commodities are trading lower as well. WTI crude oil is down around $60.40/barrel. Gold, not surprisingly, is up on the day but the gain is a very modest .6%. Believe it or not, bonds are falling in price as well, likely due to a weaker dollar. The 5-year and 10-year Treasury yields are ticked up to 2.61% and 2.85%, respectively.
Commerce Secretary Wilbur Ross was interviewed this morning on CNBC regarding President Trump's trade tariff announcement. He said this should not come as a shock. This issue has been part of the president's agenda all along. In addition, he said, "All this hysteria is a lot to do about nothing," and equated the proposed tariff to a one-half of one percent increase in the cost of an automobile. When asked whether the tariffs would apply to all foreign countries evenly, he said, "That's what the president seemed to announce yesterday." Clearly, that statement implies Mr. Ross was not consulted before the president's announcement yesterday.
This 2-day stock decline is not yet convincing. Gold is up a whopping .36% over the last two days. That's usually a safe-haven trade when financial or economic conditions turn bad. In addition, junk bonds are holding ground reasonably well, down about 1%. Significant break-downs in the stock market are usually accompanied by credit concerns. In addition, the VIX is still in backwardation, meaning futures contracts are predicting moderation in stock volatility over the next 30 days. Finally, stepping back and looking at this from a technical analysis perspective, the SPX could be trying to re-test the lows of February 8-9. In other words, this could be part of a normal bottoming process after a correction. The tariff issue may have provided a spark, but traders are looking for a reason to temporarily push stocks lower. The bottom line is that this is not a time to panic, but volatility is back and we'd better get used to it.