10 Reasons The Dow Fell 3% In Three Days

One of the many US newswire articles put out a list of 10 reasons why the Dow Jones fell 849 points (which is only 3%) from top to bottom in three days. Here they are with comments from us:
  1. From the Mandalorian 10 reasons why the market went this wayTrump upended the US-China trade deal forecast with a single comment. We have to get used to this from Trump. He is like a box of chocolates….every day. You never know what you're going to get. Nothing is relaible in the trade narrative. This is the way...(Mandalorian fans will understand).
  2. White House officials are already doubling down on the President’s remarks. In other words Trump’s minions started to talk about the possibility of delaying the trade deal until after the election. Where he leads they follow, until he changes his mind.
  3. Trump called the stock market plunge “peanuts”. We know Trump cares deeply about the stock-market and wants it to hit new all-time highs on election day, but pretending he doesn’t care about the market doesn’t sit well with the nervous. Understand that he's playing a game and not even he knows what he'll do next.
  4. Wall Street no longer believes Trump will flinch when the impending tariff deadline arrives. Trying to double guess Trump is a futile pastime, you need a degree in schoolyard psychology. But it December 15 is going to be an interesting pivot point for the market. Does Trump go soft? Or does Trump go hard? I think you know the answer to that one. I don’t think he’s in any rush to pull a deal out of the hat prematurely or give away his leverage. He wants to appear 'hard'. Unless of course he wants to play Santa Claus as well as President. You can imagine his Christmas Eve Tweet “I have just done a trade deal with China and the stock market is going higher. Happy Christmas from your President”. Who knows. The more sensible suggestion is that at some point this month both he and China will down tools on trade talks (high-level talks have already finished) and it will become clear that nothing is going to happen until next year. December 15 is the day. If the US go hard, they will increase tariffs and run into the New Year holding the whip hand. Seems the more likely outcome. Which wouldn’t be great for the market.
  5. Tariffs directly threaten one of the Dow’s most important stocks. Apple. No big concern for you unless you hold it. But it makes the point that the big end of the US market, the big technology stocks, will not weather a breakdown in trade talks well. The NASDAQ is up over 30% this year. The correction if it comes will start there.
  6. Beijing is threatening to put US firms on a blacklist. China can afford to stand its ground and will. Trump tells the world that the trade deal is entirely up to him, but from a stock-market point of view he constantly risks pushing over the line to a loss of patience from China. A retaliation to more tariffs or more delays, or the Chinese simply saying a trade deal can wait will not read well for the market at all.
  7. The stock market’s “fear gauge” is going ballistic. They mean the VIX volatility index which spiked 51% in four days. The VIX is not a leading indicator, it is a following indicator. Of course it picks up when the market goes down sharply. But it will not help you predict the next move. What you can use it for is to identify when the market is at its most fearful, and we all know that what that means, buy. It’s halfway up the hill at the moment.
  8. Investors are worried the Dow will suffer a painful bout of December deja vu. This is simply psychology not science. But you can understand with the market hitting all-time highs and holidays coming up, that it’s not going to take much to scare people out of the market. The higher the altitude the easier it is to pass out. December 15 really is a day to fear… It holds much more risk than reward from these levels.
  9. The ‘Santa Claus rally’ looks less and less likely. Unscientific fear-mongering based on the idea that the market has already gone up significantly so it must go down. Not necessarily true but you would have to be an optimist to expect a further rally just because it’s Christmas.
  10. The US economy faces another big test on Friday. The jobs numbers on Friday are also pretty pivotal. The ADP employment numbers last night were half the number expected. The US ISM manufacturing data missed forecasts this week. Whatever the trade picture is the market cannot afford an economic deterioration in the background. At some point they will turn their focus to that if it happens. Jobs numbers on Friday are another risk that is unlikely to be any more than relief at best.
Bottom line - from these levels:
  • December 15 is pivotal.
  • Jobs numbers on Friday are a risk.
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