Bull Bear Battle Continues...
The US stocks (sector performance) post mid term election rally faded on Friday, driving the S&P down -0.9% as the Nasdaq and Small cap index dropped by nearly twice as much. Despite US markets supposed to “always” rally after the midterm elections and beyond some analysts issuing bullish calls, most of the optimism linked to Trump’s tweets the week before and that were associated to the possibility of a nearing trade deal with China faded somewhat last week as White House trade adviser Navarro threw some cold water on the idea, warning instead that Wall Street should back down from its push for President D. Trump to strike a quick trade deal with China's Xi Jinping. 'As part of a Chinese government influence operation, these globalist billionaires are putting a full-court press on the White House in advance of the G-20 in Argentina,' Navarro said… Their mission is to 'pressure this President into some kind of deal' but instead they're weakening his negotiating position and 'no good can come of this.'. Navarro said investors should be re-directing their 'billions' of dollars into helping rebuild areas hit by manufacturing job losses. With the conveniently unpopular Wall Street billionaires on the line, there was less reasons to hope for a breakthrough in Sino-US negotiations… That being said, the Twitter feed of D. Trump remains open for business wide open to announce the exact opposite this week. There were some other negatives affecting sentiment last Friday. General Electric dropped sharply after a JP. Morgan analyst cut his stock price target to $6 from $10, saying GE's recent earnings were worse than expected on almost all fronts. JPM said GE's forecasts for free cash flow and EBITDA moved materially lower and predicted that by 2020, six of eight segments would be showing "zero" free cash flow. “The stock is down ~70% from the peak but this move still does not sufficiently reflect the fundamental facts," JPM wrote. The SNB reportedly issued some ‘contrarian’ signaling in Q3, selling US stocks and buying bonds. According to JPM calculations, the SNB sold around $7bn of equities in Q3, compared to purchases during 1H18 of around $6bn. The central bank also reportedly bought around $3bn of bonds in 3Q, following largely flat bond purchases during the first half of the year. Bear markets formation is a process. They do not happen overnight. They also tend be rather short lived. But they can last more than one month, especially when some structural and potentially very large deleveraging process is involved. Dominoes might have started to fall one after another including with ferocious short squeezes that are the bedrock of bear market formations. Avoiding them is not easy and riding them is even more difficult because those species want nobody on their back. The alternative of raising cash is not great but safe. Whatever happens, the situation is pregnant with many risks (QT, China and Italy to a lesser extent) and stressing many parts of the system. Part of the solution might be to hide into defensive sectors internationally such as health care. But it will remain a struggle and a nerve wrecking one to boot.
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