Why markets start Q2 with heav y baggage
THE first quarter was a dud for the stock market, even though the Dow was riding high in January when it hit its peak at 26,616.
It’s been mostly downward from there — although traders tried last week to keep up appearances by successfully boosting stock prices twice without much justification.
But Monday, the first trading day of the second quarter of 2018, started with a thud.
The Dow Jones industrial average fell 758 points at its worst Monday. It closed down nearly 459 points, at 23,644 — proving once again that markets manipulated like they were last week never stay up.
The S&P 500 on Monday fell decisively below its 200-day moving average, which is a bad omen for technical traders. Nasdaq was the biggest loser Monday — down 2.74 percent.
Even though it’s a new quarter, Wall Street is facing the same old issues. Here are some of the things that could take more air out of the stock market bubble over the next three months:
The Federal Reserve is always in the top spot as far as Wall Street danger is concerned. And the Fed, newly headed by Jerome Powell, wants to raise interest rates and will probably do so at least two more times this year.
One of those times could be when the Fed’s policymakers meet next month. Higher rates are a big negative for the market — more so if the rates rise of their own accord (which happens) and not because of Fed action.
The economy: It would be bad news for the markets if the US economy falters. It will be worse if the economies of Europe and Asia decline with ours.
But it has been nearly nine years without a recession in the US, so an economic downturn is long overdue.
Wall Street, however, may be able to live with a little recession because that might slow down the Fed’s rate hikes. But there’s a fine line between a good “just enough” recession and one that is bad enough to hurt the stock market.
President Trump instituted tax cuts in 2017 but, so far, they don’t seem to have helped the economy. Thus the word “recession” might be heard more and more in the months ahead.
North Korea: The threat of a nuclear attack by Kim No-fun never re- ally seemed to bother Wall Street. After all, that country’s Supreme Leader is a bit of an attention seeker, and many didn’t consider him or his bombs a real threat.
So when news broke last week that China had apparently stepped in and told Kim what’s what, the market didn’t rally. But any setback on the expected denuclearization of North Korea might compel Wall Street to reassess its calm point of view.
Chaos in Washington: The more chaos that occurs in the Trump administration, the more Wall Street gets used to it and shrugs.
But there are some wild things about to happen. For one, Special Counsel Robert Mueller’s investiga
tion can’t go on forever. And the way I see it — despite the wishes of most of the mainstream media — Mueller is going to find no collusion between the Trump campaign and the Russians.
There could be some charges of obstructing the Russian investigation against underlings but that, to the disappointment of the media, should be small stuff.
If I’m right, Wall Street will be happy. If I’m wrong and Mueller actually has something on Trump, the stock market could have trouble.
The bigger issues will be what hap- pened inside the FBI during its investigation of Hillary Clinton’s missing e-mails. There’s a report from the Justice Department’s inspector general that’s due any day now.
What’s in that report could be big news since it looks like some folks inside the FBI, including former Director James Comey, got careless with their partisanship because they were certain Hillary was going to win and nobody would find out what they were up to. How will Wall Street see this? If my instincts are correct and the ultimate outcome of all these investigations will be more damaging to the Democrats than to Republicans, I think Trump’s political position will be strengthened. So Trump’s increased strength could lead to more joy on Wall Street.
Wall Street cheered and stocks rallied on recent reports that China and the US were discussing a settlement of their trade tensions. But China over the weekend imposed 25 percent tariffs on 128 US goods.
This was partly the reason stock prices fell on Monday.
If it looks like the US will get into a trade war with China and other coun- tries, Wall Street’s cheering will turn to booing. Technology stocks like Amazon and Facebook have been the darlings of the market. But both have had their issues recently. Facebook is proving to be a company without a conscience at a time when Wall Street isn’t buying immoral. Amazon, which is controlled by Jeff Bezos, is on the wrong side of Trump. Bezos also owns the Washington Post, and Wall Street is worried that Trump will hurt Amazon’s business because of his feud with Bezos. At some point, Wall Street will start worrying about America’s habitual habit of overspending. With the US deficit rising by $1 trillion since last September, this next quarter could be the one when investors stop smelling the roses and get the rotting whiff of debt. Bottom line: Only a fortune-teller knows how any of these things could turn out, and I’m not one. If some of these break the right way, the market could rally. If something goes wrong, the stock market bubble — which has already lost more than 10 percent of its air — could deflate a lot more.