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And Behold, The Nasdaq Crashed.

"Hello darkness, my old friend."

Well, Wednesday turned into a rout on Wall Street, and there was no late-session stick save. In fact, the selling accelerated into the close, which means there was probably a systematic element to it.

As noted, the “slow bleed”/”death by a thousand cuts” narrative is taking hold as investors fret about late-cycle pressures, peak profits and the prospect of a looming Fed mistake that finds a data-dependent Jerome Powell hiking the economy into a slowdown.

In that linked post, we illustrated a variety of sore spots, from homebuilders, to regional banks to autos, but as ever, there is perhaps no more ominous sign for the market than underperformance by Tech and Growth. On Wednesday, we got both (which isn’t surprising because after all, they’re somewhat synonymous).

Let’s just run through a couple of charts here, because clearly, things went awry.

Wednesday was one of only a handful of sessions in 2018 when Growth underperformed Value by 1% or more. Some other notable examples are annotated on the bar chart.

ValueGrowth

Wednesday was the worst day for the Nasdaq since summer 2011.

Nasdaq

Wednesday also saw the largest spike in the Nasdaq VIX since February.

VXN

The FANG+ index is screwed.

FANGs

(Bloomberg)

Remember Netflix’s big earnings blowout? Yeah, well, it’s now fallen in five of the last six sessions and today was especially brutal. This was the worst day for the shares since July 2016.

NFLX

That’s ok, they can always sell some more junk bonds, right?

The S&P is on the edge of a correction and has now erased its gains for 2018.

SPX2

The question now is how much further stocks have to fall to force a Fed relent. The Fed put is no longer struck ATM, and at this point, it’s pretty clear that stocks would need to drop enough to meaningfully tighten financial conditions for Jerome Powell to back down. If it’s tightening financial conditions you’re looking for, do note that the dollar at YTD highs will of course exacerbate any tightening pressure exerted by falling equities.

The market appears to think the Fed might get cold feet. As Nomura’s Charlie McElligott wrote Wednesday morning, EDZ8-9 is now only tipping 46bps worth of hiking next year in contrast to the dots. Meanwhile, EDZ9-0 is inverted again – so, “no hikes” in 2020.

Inverted

(Bloomberg)

“This effectively communicates that the market anticipates the Fed’s hiking cycle to be wrapped by ~mid-2019, with the Fed EASING equally likely to begin in 2020,” McElligott reminds you.

Of course if you ask Donald Trump – and also tech investors – Jerome Powell should have started easing yesterday.


 

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6 comments on “And Behold, The Nasdaq Crashed.

  1. Reality is finally setting in… long overdue.

  2. You, RealVision and Charlie McG saved me $450,000. My heartfelt thanks.

  3. Harvey Darrow Cotton

    So the S&P and NASDAQ are at roughly the same levels as December 2017. Did anyone think those indices were cheap then? Why should the Fed change policy?
    That is, unless ‘free-market capitalists’ don’t like two-way markets and want to be spoon-fed mother’s milk (to egregiously mix metaphors). Why not just have the Fed buy the dip and be done with all pretense? I mean, 2.25%! Teh insanity!

  4. Lance Manly

    Obviously the baboon occupying 1600 Penn. Ave is clueless how global economics impact securities. We have seen it for years that major events like the Japanese tsunami to the Greek debt crisis reverberating around the globe. So if you are threatening a trade war across the global economy the multi-nationals will take hit. Kevin Muir’s latest piece reiterates that within the interconnected economy the US is not an island. Oh, and yeah keep an eye on the bid to cover ratios on the treasury auctions. Stupid baboon.

  5. H. words and the research on my part that followed helped me to take a contrarian leap before the big Feb dip. Good stuff; in a rough world.

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