Friends
Holy cow. I mentioned yesterday that the reversal we saw in stocks was the largest I had ever seen in my 41 years in the business. I was right as evidently it was the biggest reversal since the 70’s (I was still in high school then). After the market closed yesterday things kept getting worse. By 11:00 PM Central Time bond yields spiked dramatically and there were rumors of leveraged hedge funds getting blown up in what’s called a “basis” trade, or the possibility that the Chinese were trying to fight back by selling Treasury Securities and disrupting our markets. In moments of turmoil in the stock market we normally see a flight to safety as investors sell stocks and buy Treasury Securities (pushing rates lower). This had been the case until this week. Bonds started to sell off (rates moving higher, exactly what the President did not want to happen) with stocks and that got everyone’s attention. Now, the stock market has a very good track record with regards to getting the attention of Fed Officials and politicians. The bond market on the other hand is undefeated with regards to getting the attention of Fed Officials and politicians. When the credit markets start to show signs of stress something is going to happen. If the President hadn’t changed his stance today (and he did the right thing) it is likely the Fed would have had to engage.
Anyway, this afternoon the President announced a 90-day pause on the most extreme of the tariffs and stocks soared. This was always a very dangerous situation for the bears to be short because the President held the cards, and he could play them at any time. Today he played his cards. We talked about some of this during our webcast on Monday. These are moments where the best thing is for investors to remain calm. Situations can and will change almost instantaneously. Things are still likely to remain volatile for a while but at least for a day we can take a sigh of relief and enjoy a great day for stocks.
As for today, stocks might have had the most positive reversal I have ever seen since the 87 crash and one of the biggest up days in history. By the close, the Dow Jones Industrial Average was up 2,962 points to finish the day at 40,608. The S&P 500 was up 474 points to close at 5,456. The Nasdaq Composite Index was up 1,857 points to close at 17,124. Gold was up $120 to trade at $3,111 per ounce, while oil was up $3.18 to trade at $62.76 per barrel WTI.
Wow, what a day! Oh, and now we move into earnings season. Oh boy. That’s enough from me for now. If you have any questions about any of this, give us a call. In the meantime, let’s see how this crazy week finishes out.
Have a nice evening everyone.
Jim
