After snapping a five-day winning streak on Wednesday, the market continues to tumble Friday morning, as the Dow shows a 250 point drop amid rekindled fears over US-China trade tensions and a global growth slowdown.
Two stocks in particular – Intel (NASDAQ: INTC) and Chevron (NYSE: CVX) – led the bearish charge, falling roughly 2% and 1.5% respectively. The S&P 500 and NASDAQ Composite got in on the action too, both slipping roughly 0.7%.
Analysts are blaming the exaggerated slide on an article from the Wall Street Journal (WSJ) published Friday, which states that China and the United States still haven’t assembled a draft on a trade agreement. This is troubling news for market bulls, as an upcoming March deadline to enforce further tariffs lingers in the near future if both sides can’t find a suitable compromise.
Even worse, following a raucous State of the Union address, President Trump said that he wouldn’t be meeting with Chinese President Xi Jinping before the tariff deadline. China, despite having its economy run ragged, still refuses to budge according to White House economic advisor Larry Kudlow, who said in the WSJ article that there is a “pretty sizable distance to go” before a deal is struck.
Peter Cardillo, chief market economist at Spartan Capital Securities, remarked, “The fear factor over the trade war has crept back into the market. That’s going to send [it] for a bumpy ride.”
‘We’re probably looking at a more defensive situation until we have more clarity on the trade negotiations,” he added.
Cardillo’s statement – that a defensive posture is to be assumed – reflects the opinion of many other experts in the financial services industry, all of whom are trying to protect their clients from undue risk.
The timing of this unfortunate trade war news came at the worst possible time for bullish investors, as the market seemed to have already overextended itself by stretching out the post-Christmas rally. Even without another global economic crisis on our hands, equities looked ready to fall. Add to that the most significant stressor (besides interest rates) of the last few months, and you’ve got a scenario that could erase 2019’s market gains in a very short amount of time.
Veteran traders (myself included) have been awaiting the next dip anxiously, as stocks have been giving us signs across the board that a significant correction was hastily approaching. And though we anticipated it, I don’t think we expected it to happen right alongside more US/China tariff drama – something that will only intensify the next plunge further.
My take away from all of this is that if the money managers like Cardillo – the ones who pull the strings on institutional portfolios – are beginning to flip, we could be in for a major drop. What we’ve seen these last three days is just a small sampling of how bad it could really get, especially since the market rallied so strongly in the weeks prior.
The rise was almost irrational in a way, as investors seemed to forget (or simply ignore) the fact that we’re still in a bear market.
Well, it looks like the reality check we’ve been waiting for could finally be here, and if it truly is, then all those bulls who got fat on the new year’s rally need to change their tune quickly.
If they don’t, they might find their portfolio leaner than ever after all is said and done.