For the last few months, there have been ongoing issues surrounding the “Russia Connection” and the underlying, and ongoing, investigations into the potential involvement/interference into the Presidential elections.
The market hasn’t cared. Until Wednesday.
As suspected, it did end with a bang on Wednesday as markets dropped sharply on the news of a “leaked” memo to the New York Times. James Comey, former head of the FBI, will now be questioned by Congress next week and asked to provide that memo, but in the mean time the Justice Department has now appointed a special prosecutor to investigate the “Russia Connection.”
While the Washington intrigue is certainly interesting, the question is “why after all these months did it matter to the markets now?”
The answer is simple. It potentially stalls all the legislative actions the markets have been banking on for the “Trumpflation” trade from tax cuts to infrastructure spending. A look at the bond market gives you a clearer picture of the “fading” hopes on an inflation-driven economic boom.
Importantly, as shown in the chart of the S&P 500 above, the markets broke below the 50-dma on Wednesday and triggered a short-term “sell signal” as shown in the lower part of the chart. Importantly, these signals when previously triggered have denoted periods of increased volatility and corrective actions until they are complete. Despite the rally on Thursday, I suspect the “shot across the bow” on Wednesday was just that, a warning shot to investors which suggest reflexive rallies should be used to rebalance and de-risk portfolios for now.
We need to see what happens over the next week to see if the markets can regain their footing. However, for now, holding a little dry powder continues to make some sense.
In the meantime, here is what I am reading this weekend.
- The Running Of The Bull Mouths by Danielle Dimartino-Booth via MoneyStrong
- Trump Woes Not Driving Markets by Edward Harrison via Credit Writedowns
- Household Debt Hits New Record by Tyler Durden via Zero Hedge
- “Look Ma, No Hands!” by David Stockman via Daily Reckoning
- Fed Is Wrong To Obsess About Wages by Caroline Baum via MarketWatch
- Bogus CPI Data Won’t Slow The Fed by Lee Adler via Daily Reckoning
- GOP May Have To Vote On Health Care Again by Bob Bryan via BI
- 6 Long-Term Economic/Investment Themes – Part 1 by A. Gary Shilling via Bloomberg
- 6 Long-Term Economic/Investment Themes – Part 2 by A. Gary Shilling via Bloomberg
- Worst News For Economy Coming From Banks by Jeff Cox via CNBC
- Trump Waging War On Working Class by Robert Borosage via The Nation
- Fed Is Making A $2 Trillion Mistake by Narayana Kocherlakota via Bloomberg View
- Inflation Not Cooperating With Fed by Tim Duy via Fed Watch
- Orwellian Monetary Policy by Macromon via Global Macro Monitor
- American Dystopia Didn’t Begin With Trump by Darrell Delamaide via MarketWatch
- Evercore: Don’t Expect To Be Bailed Out By The Fed by Tyler Durden via ZeroHedge
- History Suggests Investors Should Be Way More Cautious by Paul Brandus via MarketWatch
- The Big Picture by Ray Dalio via Linked-In
- Signs Point To Equity Under Performance by Bryce Coward via Knowledge Leaders
- Get Ready For Lower Market Returns by Michael Santoli via CNBC
- Elevated Stock Prices Are Here To Stay by John Coumarianos via MarketWatch
- Fell On Black Days by Eric Parnell via Seeking Alpha
- Is This The End Of The Trump Rally by Michael Kahn via Barron’s
- The VIX Article No One Will Like by Kevin Muir via The Macro Tourist
- Unusually Low Volatility Dangerous For Stocks by Mohamed El-Erian via Bloomberg
- An Eerie Similarity To 2007 by Doug Kass via Real Clear Markets
- Please Don’t Repeal To-Big-To-Fail by USA Today
- Markets Don’t Know What To Expect by Dan Kern via US News & World Report
- Sell-Off As Much About Earnings As Trump by Howard Gold via MarketWatch
- A Setup In Place For A Pullback by Avi Gilburt via MarketWatch
- Staying Stuck by Jeffrey Snider via Alhambra Partners
Research / Interesting Reads
- Used Car Values Sink by Wolf Richter via Wolf Street
- Dalbar 2016: Investors Remain Own Worst Enemy by Tom Allen & Mark Hebner via IFA.com
- CAPE, Why Hast Thou Forsaken Me by Meb Faber via Faber Research
- Time To Drop “Thought Leader” From Your Resume by Simon Constable via Forbes
- The Time Seems Very, Very Different by Denis Ouellet via Edge & Odds
- The Pig Has Exited The Python by Mark Hanson via MHanson.com
- Financially Stressed Prefer Saving by Jim Norman via Gallup
- Rich Retirees Hoarding Cash Out Of Fear by Ben Steverman via Bloomberg
- Here’s What A Tesla Roof Will Cost You by Stacey Leasca via Forbes
- Hidden Debt & Deficits – 2017 by Joshua Rauh via Hoover Institution
- Factor Tilts Are Not Smart Beta by Rob Arnott via Research Affiliates
- Investors Pay Twice For High P/E’s by John Hussman via Hussman Funds
- Emerging Markets At A Crossroads by Dana Lyons via Tumblr
- Investors Better Hope This Time Is Different by Jesse Felder via The Felder Report
“The Market Will Always Tell You When You Are Wrong.” – Jesse Livermore
Questions, comments, suggestions – please email me.
Lance Roberts is a Chief Portfolio Strategist/Economist for RIA Advisors. He is also the host of “The Lance Roberts Podcast” and Chief Editor of the “Real Investment Advice” website and author of “Real Investment Daily” blog and “Real Investment Report“. Follow Lance on Facebook, Twitter, Linked-In and YouTube