The Resistance Reports
March 22, 2017
The stock market have been enjoying about 3 months of so called “Trump Trade” & now there is talk about “Trump Trade 2.0” but this time meaning, down-ward for stocks. To many the entire Trump’s economic picture is a conundrum. His vision of massive stimulus, massive tax cuts and massive spending cuts, leaves many wondering, is that possible? Number crunching aside, Americans are asking, i.e. is cuts on Meals on Wheels and health insurance possible,, without massive social unrest and an imprint on 2018 election that could un-do much of what Trump does.
Market Watch reports (source): So, was yesterday’s bloodletting a one-off, or have we begun “Trump trade 2.0”? We’ve got to get through a couple of days yet before we find out. In the original Trump trade, stocks enjoyed a postelection rally on hopes the new U.S. administration will deliver on its promised pro-growth agenda. But that was disrupted in a big way yesterday, as it looked like the Republican health care bill might stumble Thursday. If it does, the rest of the adminstration’s agenda might fall short — and the selloff set in.
“The End of Trump-trade Tranquility” is how The WSJ’s Daily Shot summed up the day’s bumpy trade. Here’s its charts showing how Tuesday marked the end of a historic run for the S&P 500, which hadn’t closed with a 1% or decline for more 110 days.
On to our call of the day from Kathleen Brooks, research director at City Index, who is pretty convinced of where things are headed now, given her note is titled “Trump Trade v. 2.0: weaker dollar and vulnerable stocks.” “For some time, we have spoken out against jumping on the bear-market bandwagon. However, in recent days the market is sending us some signals that could suggest a deeper pullback is on its way,” she says.
Among the signs that have given her pause, the Treasury yield curve yesterday reached its narrowest level since the end of February. Meanwhile, the traditional leading indicator, the Dow Jones Transportation Average DJT, -1.87% , is down more than 7% in the last three weeks, Brooks told clients in a note. Persistent selling pressure all month, accompanied by a fall below the 100-day moving average for the DJT, has prompted Brooks’s team to stand up and take notice.
“If this historical relationship is maintained, then this bodes ill for the broader U.S. indexes,” she said.
Meanwhile, Institutional investors see U.S. as most overvalued global market. I don’t want to alarm anyone, but the people managing the world’s investments are getting extremely worried about the stock market. Institutional investors with a collective half-trillion dollars under management now say that global stocks are the most overvalued since 2000.
Making matters even worse is that by their own admission they are massively overexposed to stocks in their portfolios — suggesting the risk of a crush at the exits if this thing turns sour.
The twin dangers emerge from the latest survey of global money managers by Bank of America Merrill Lynch. The bank’s economists surveyed 165 professional investment managers worldwide, with an aggregate $505 billion in funds under management. The long-running survey, which is conducted each month, is considered one of the best barometers of big money investment opinion. It is also often a good forward indicator of where sentiment — and prices — have the most room to change.
A net 34% of money managers reported that they now considered global equity markets overvalued. For clarification: This is not just 34%, but a net figure, meaning the margin between those viewing markets overvalued and the rest. This is by far the highest figure seen in the survey in the past 17 years, says Merrill Lynch. And the region they consider the most overvalued? The U.S. Yet at the same time, a net 48% of these managers say they are overweight stocks in their portfolios, meaning they hold more than their benchmarks would require. That’s also well above average, though it’s still shy of the peaks.
Here’s one more Brooks is watching: The so-called fear gauge, or CBOE Volatility Index VIX, +4.41% . She said a rise above 13.11 — the high from early February — would be “another bad omen” for stocks. Wall Street stocks were poised to build on the prior day’s sharp slump Wednesday, as investors grew concerned that the Trump administration will fail to deliver on its pro-business promises. Futures for the Dow Jones Industrial Average YMM7, -0.27% lost 38 points, or 0.2%, to 20,589, setting the blue-chip benchmark on track for a fifth straight session in the red. S&P 500 index futures ESM7, -0.17% lost 1.20 points, or 0.1%, to 2,340.75, while those for the Nasdaq-100 index NQM7, -0.13% fell 3.25 points, or 0.1%, to 5,335. On Tuesday, the Dow average DJIA, -1.14% and the Nasdaq Composite Index COMP, -1.83% ended with their biggest one-day percentage losses since September, while the S&P 500 index SPX, -1.24% posted its steepest drop since Oct. 11.
The selloff came as issues with the Republicans’ health care bill prompted investors question the President Donald Trump’s ability to follow through on promises of tax reforms and $1 trillion in infrastructure spending, according to Connor Campbell, financial analyst at Spreadex. A vote on the bill has been set for Thursday. “Combine that with [The Wall Street Journal], a notably right-leaning publication, claiming that if Trump doesn’t ‘show more respect for the truth’ then ‘most Americans may conclude he’s a fake president’ and the optimism that caused investors to flock to the major indices has been seriously undermined by, well, Trump himself,” Campbell said in a note.
Market Watch also reports Brexit is hurting U.K.-focused stocks
The FTSE 250 has been the U.K. stock gauge to watch if you want a sense of how the country’s economy is handling the Brexit process. But it’s now in for some competition, as the CBOE Holdings Inc.’s CBOE, -1.08% Bats Europe exchange and data provider FactSet FDS, -2.46% have teamed up to launch the Bats Brexit High 50.
This new benchmark is made up of the 50 companies in the Bats U.K. 100 Index (a year-old rival to the FTSE 100) that get the lion’s share of their revenues from the U.K. Right now, the Bats Brexit High 50’s components are underperforming, as shown in the chart above. The gauge is roughly flat (up only 0.8%) since Britons voted on June 23 to leave the European Union, according to Bats. Meanwhile, the Bats UK 100 Index is up 16%, and the FTSE 100 UKX, -0.86% also has gained roughly 16%, both helped by the pound’s GBPUSD, -0.1763% 17% slide. Sterling’s slump has been a boon for these two indexes’ multinational components, as they generate the bulk of their revenue overseas and then translate the money back into pounds.
Another new index that is all about non-British revenue is faring even better. The Bats Brexit Low 50 — made up of the 50 names in the Bats UK 100 Index that get the smallest portions of their revenues from the U.K. — is up 23% since the referendum. So the domestically focused Bats Brexit High 50’s underperformance could inspire “Remain” supporters — those who wanted to stay in the EU — to say they were right in their warnings about a withdrawal.