Stocks Fall After Fed Meeting & New Tariffs
The market fell hard last week after the Fed cut rates and Trump announced a new 10% tariff on Chinese goods. Volume picked up as the market sold off which is not a bullish sign. Stepping back, the market was extended and over due for a nice pullback and that is what is happening now. It is important to note that, historically, stocks have experienced a few big “down” Augusts. That doesn’t mean it happens again – just bringing to your attention since it is front and center in my mind. In that vein, if this pullback gets ugly, then we have to be prepared for something more severe in the months ahead. Remember, the market has responded very well to all the easy money from global central banks and the fact that it is selling off -after the Fed cut rates – is not a good sign. In the short term, the 50 DMA line is support and the major indices are trying to defend that level.
Stocks were quiet on Monday as investors waited for another heavy week of earnings and the much anticipated Fed meeting. Ahead of the Fed meeting, President Trump tweeted that the Fed should cut rates and he characterized the current rates as being oppressive. On Tuesday, stocks were relatively quiet as the world waited for the Federal Reserve to conclude its 2-day meeting. In other news, President Trump tweeted some more negative comments aimed at China which reduced the chances the two largest economies will reach a trade deal anytime soon. On Wednesday, the market was mostly quiet ahead of the Fed meeting. In the afternoon, the Fed concluded its meeting and cut rates by 25 basis points for the first time since the Great Recession. The “big” news came when the Fed basically closed the door to future rate cuts. That spooked the Street and sent the market down over 300 points.
Thursday & Friday Action:
On Thursday, stocks fell hard on heavy volume after being up earlier in the session. The market sold off after President Trump said the U.S. would impose an additional 10% tariff on Chinese imports. Trump’s tweets happened another round of high-level meetings between U.S. and Chinese officials. This was the first high level in-person talks between the two countries after the recent trade truce was announced. Stocks fell on Friday but recovered off the lows as the bulls showed up and tried to defend the 50 DMA line. In other news, the U.S. economy added 164,000 jobs in July, just missing the Street’s estimate for 165,000. The gains pushed the size of the U.S. labor force to a record high.
Market Outlook: Easy Money Is Back
Once again, global central banks showed up and juiced markets. The market has soared all year based on two key points: optimism that a trade deal will be reached between the U.S. and China and more easy money from global central banks. Earlier this year, the Federal Reserve reversed its stance and moved back into the easy money camp. Then, other central banks followed suit and that means easy money is back to being front and center for the market. Separately, the trade talks have resumed with China and the markets are back to new highs. As always, keep your losses small and never argue with the tape.