US stocks buckled under the weight of political tumult on Tuesday, as Donald Trump’s contentious remarks around trade with China at the UN General Assembly and news that Nancy Pelosi is set to announce a formal impeachment inquiry weighed on risk sentiment.
It didn’t help that consumer confidence slipped the most in nine months, while the Richmond Fed’s factory gauge missed even the lowest estimate for September.
Ultimately, both the S&P and big-cap tech posted their largest losses since August 23, when Beijing announced retaliatory measures to the latest US tariffs, prompting Trump to unleash one of the more memorable tweets of his presidency on the way to hiking tariff rates later that day.
Tuesday’s losses marked the second day in three that US equities have struggled. Last week was the first down week of the month. It didn’t help that Trump lambasted social media companies at the UN.
You’ll recall that seasonality is not on the market’s side.
(LPL)
Trump’s UN address was abrasive, albeit delivered in a “teleprompter” cadence that was supposed to make it sound more credible and less like an infomercial for the US president’s brand of tacky jingoism.
His comments on China and trade were an unwelcome development to the extent he painted the country with the thieving scoundrels brush. As far as domestic politics go, Trump’s effort to placate Democrats by announcing the release of a transcript of his controversial call with Ukraine’s Volodymyr Zelensky was seen as too little, too late. Formal impeachment proceedings are set to move forward, and the whistle-blower whose complaint helped amplify this latest scandal is now angling to have a chat with Adam Schiff’s House intelligence committee.
Treasurys surged as the risk-off sentiment proliferated, with yields lower across the curve. The 2s10s bull flattened.
Depending on the evolution of the various political narratives which drove Tuesday’s action, things could get messy from a systematic flows perspective.
“Trump’s ‘shots fired’ at China during the UN speech concerned markets ahead of the expected mid-October trade meetings and one week ahead of the 70th anniversary of the Chinese Communist Party”, Nomura’s Charlie McElligott wrote, adding that “impeachment momentum” didn’t help.
Notably, dealer positioning flipped to short gamma at ~2,970 McElligott said midday, documenting a trio of potential “downside accelerant” flows.
(Nomura)
He went on to note that Nomura QIS CTA model’s “current deleveraging ‘sell trigger’ estimate for SPX futures is sitting below 2,944 where the position would go from the current +100% Long down to just +54% Long”.
You can look at that one of two ways. A glass-half-full take would be that we’ve got a bit of a cushion before those sell flows come into play. A glass-half-empty assessment would be that anecdotally, we’re probably just one negative trade headline away from another ~1% move lower, which would trigger deleveraging.
For the past 2-3 weeks, the spin has been about “green shoots”. The latest data points have been rather brown.
Distinctly brown so in just about every ex-US economy, mostly so in the mfg-transp-trade part of the US economy, and tinges of brown are creeping into the US consumer story, what with stumbling sentiment, high net worth cash positioning, even a hint of employment worry.
Is it springtime, or autumn, in the economic cycle?
I will go out on a limb and assert that the US consumer and her employment, spending, and confidence are just about the only significantly green set of data points in the global picture. When the first of those leaves fall from the branch, the cold wind will be near.