This week started off on a decidedly downbeat note when, following a weekend of violence in a place that’s not used to seeing Nazi rallies, vehicular manslaughter, and helicopters falling from the sky, Donald Trump used the Q&A session of a press conference about infrastructure to defend white supremacists and talk about Thomas Jefferson’s slaves.
Reporters were aghast, “but you know what? it’s fine“…
"so you know what? it's fine".
drunk Donny didn't want to play with you people anyway… pic.twitter.com/LmCWKyyDjD
— Heisenberg Report (@heisenbergrpt) August 18, 2017
As it turns out, it wasn’t “fine” and within 24 hours, corporate America had abandoned Trump and lawmakers from both sides of the aisle were busy lambasting the President on Twitter and in front of anyone who would listen.
By Thursday, TIME, The Economist, and The New Yorker had released cover images painting (figuratively and literally) Trump as a Klansman and a Nazi and a “rumor” that Gary Cohn’s resignation was imminent sent stocks plunging.
The administration was “in an uncontrolled dive”…
An ill-timed terror attack in Spain (I mean, all terrorist attacks are “ill-timed” in the sense that there’s never a “good” time for terror, but you know what I mean) caught Trump at a bad moment, prompting him to suggest on Twitter that the perpetrators should be shot with bullets dipped in pigs’ blood (and yes, this is real, that really happened).
Needless to say, Europe and Asia had a hard time staying green in the overnight on Friday.
In an effort to get some drag, Trump got rid of Steve Bannon on Friday and equity markets cheered – literally:
https://twitter.com/AndrewKirell/status/898599737980354560
Wall Street erased early losses after Bannon was ousted, but ultimately couldn’t hold on which means this ended up not being the best week (remember, Thursday was the worst day for the Dow in three months):
With the S&P closing at 2,425, note this from Bloomberg:
The S&P 500 Index is in the midst of its ninth-longest run of not entering oversold territory, which Bespoke Investment Group defines as a close more than one standard deviation below its 50-day moving average. This 196-session streak, which started just before the U.S. election, would end if the benchmark gauge ends the week below 2,429.
Here’s some VIX context for you:
Gold crossed $1,300 for the first time since the yellow metal’s biggest fan was elected as the risk-off sentiment surrounding the Cohn rumor and the dour mood engendered by the terror attack in Spain buoyed havens…
…but quickly reversed course on the Bannon news. It was the same story with the yen. Have a look:
Much like Donald Trump, retail had its worst week since last week:
Financials had an interesting week between the Fed minutes which sounded tepid on the inflation outlook and downright cautious on fiscal policy, the Cohn rumor which sent the sector sharply lower Thursday, and then a rebound on Friday following the Bannon news:
Here’s an annotated 10Y yield chart that pretty much tells you everything you need to know about this week:
Another read on market breadth worth looking at – note that the previous three S&P gains came on days when more stocks hit 52-week lows than highs:
For some further color on that, we go to Bloomberg’s Andrew Cinko:
Some market watchers have pointed to a warning sign of bad times ahead given the S&P 500’s bad breadth as the index holds near record highs. The typical line of thinking is that strength among the largest market-cap companies is masking weakness in smaller companies. Dividing the S&P 500 into quintiles (it’s actually 505 stocks), however, shows the bad breadth is egalitarian, stretching nearly equally from the biggest companies to the smallest. Among each quintile, this many stocks are trading below their 50-day moving average:
- 1st: 56 of 101 stocks
- 2nd: 45
- 3rd: 54
- 4th: 64
- 5th: 69
Among the top 10 weighted stocks in the S&P 500, six of them are below that trend line (AMZN, J&J, Exxon, JPMorgan, and two classes of Alphabet). As for the 4th and 5th quintiles, eyeing the list of companies you’ll find a lot of hard hit retail and energy names as well as REITs and consumer staples, i.e. it’s not surprising. If anything, one might be able to argue that stocks with a market cap from $26 billion to $49 billion are keeping the index afloat, which is an interesting twist on the typical market view.
Crude exploded to the upside on Friday ahead of the rig count data, apparently following risk assets higher:
Nevertheless, concerns linger about when or even “whether” the market will finally rebalance. “Oil-market bearish sentiment has turned but investor positioning suggests no strong conviction on direction,” Citi said in a note today.
European shares ended the week on a decidedly sour note as a late bump from the first inklings that Bannon was out in Washington wasn’t enough to overcome the negative sentiment from Thursday’s terror attack in Spain.
Stay tuned to Trump’s Twitter feed this weekend because as KBW reminds you:
… the last 7 months show that regardless of what the White House staff intends for President Donald Trump, he’s only a tweet or impromptu press conference away from wrecking those plans.
Oh, and don’t forget: Jeff Gundlach is a scorpion…
Close on Lows . That didn’t feel good.