Professional Investors Are Selling Stocks as International Risks Pile Up… Repeat of December Meltdown Is Inevitable: Raoul Pal

Professional investors are selling stocks as international risks pile up

The repression of human rights in China, limits on American money flowing to Chinese stocks and a mini-crisis in Turkey are beginning to weigh on the stock market.

Let’s explore this issue with the help of two charts.

Two charts

For the first chart, please click here for an annotated chart of S&P 500 ETFSPY, +0.68%. For the sake of transparency, this chart was previously published and no changes have been made.

For the second chart, please click here for an annotated chart of S&P futuresESZ19, +0.19%. The chart of futures is used because they were trading through the night when the selloff started.

Note the following:

• For proper context, please start by reading “President Trump might just be the best stock market timer ever.”

• The first chart shows how Trump ran up the stock market when there was a great setup for it to fall.

• The second chart shows the drop in stock market futures on China concerns.

• The second chart shows the VUD indicator. The VUD indicator is the most sensitive measure of net supply and demand in real time. The chart shows net buying in green and net selling in orange.

• The U.S. has blacklisted 28 Chinese entities for their role in repressing Muslims in Northwest China.

• The direct effect of the blacklisting can be seen by the move in the shares of U.S. semiconductor company Ambarella AMBA, +0.96%. Two of the blacklisted companies make up about 25% of Ambarella’s revenues.

• The blacklisting comes right ahead of the high-level talks with China.

• There is a report that the Trump administration is considering limiting U.S. government pension funds from investing in Chinese stocks.

• The Chinese state TV network halted showing NBA games after a tweet by Houston Rockets general manager Daryl Morey expressing support for Hong Kong’s protestors.

• A mini-crisis is developing in Turkey. There is a report that Trump has ordered withdrawal of the U.S. troops from Northern Syria.

• Turkey has announced that it is planning to invade Syria.

• A Turkish invasion may result in a bloodbath of Kurds, who have been staunch allies of the U.S. in fighting ISIS.

• As of this writing, Trump appears to be rethinking that strategy after Republican senators objected.

• Trump needs help from those senators to ward off impeachment.

• As of this writing, the stock market has backed off from the resistance zone. To learn about zones, please see “Why you need to understand support zones in the stock market” and “The most important indicator in the stock market today is support zones.”

 

Repeat of December Meltdown Is Inevitable: Raoul Pal

A repeat of that rout that wiped nearly 20% off the S&P 500 last December may be unavoidable, warns our call of the day from former GLG global macro…

Edge of your seat or under your seat may both be good spots to watch the U.S.-China trade talk-show getting under way Thursday.

That’s judging by the stream of conflicting news reports that have been whipping markets around, such as one report saying the Chinese would bail early, briefly wiping 300 points off Dow futures late Wednesday. Wall Street shares are up in early trade on some promising trade headlines, but it’s early still.

And then earnings season kicks off next week with some big banks. Before you know it, we’re hitting the holidays and maybe some uneasy flashbacks to last year’s December stock meltdown.

A repeat of that rout may be unavoidable, warns our call of the day from Goldman Sachs alumnus Raoul Pal. “We’re coming into a period of illiquidity for equities,” the author of the Global Macro Investor newsletter, followed by the world’s biggest hedge funds, told MarketWatch in a recent interview.

He cites three reasons why a repeat of that stock selloff may be inevitable. The first is the blackout period for companies, which hits around earnings time when their share buy backs start to slow. Secondly, he notes that this year has also seen problems with the short-term borrowing market, or repo market, that the Federal Reserve has been trying to tackle. It could mean less buying from market makers — who help create liquidity for markets by bringing buyers and sellers together.

Pal says the third biggest issue facing stocks involves the baby boomers, Americans born between the mid 1940s and mid 1960s. They face an annual requirement to sell about 5% of their individual retirement accounts, loaded with stocks in some cases, as they reach 70.5 years old.

WSJ Survey: Majority of Economists Say Manufacturing Sector in Recession

U.S. manufacturing is in recession, two-thirds of economic forecasters said in a survey, and overall growth in the second half of 2019 is expected to further slow.

In a Wall Street Journal economic survey conducted in recent days, 65.3% of private-sector forecasters said the manufacturing sector was in recession, or two or more consecutive quarters of contraction.

Forecasters’ estimates for economic growth in the second half of 2019 also ticked lower, with U.S. economic output to grow, on average, at a 1.82% pace in the third quarter and a 1.77% rate in the fourth quarter. Those figures are down from a September survey predicting 1.92% and 1.81% growth rates, respectively.

Respondents largely cited the uncertain trade picture, weak global growth and U.S. political developments in their comments on the economic outlook.

“It’s a laundry list of ‘shocks’ that are coming one after the other: global growth hiccups, Boeing Max fiasco, IPO market fizzle, GM strike, election cycle swoon and getting compounded by the impeachment drama,” said Georgia State University economist Rajeev Dhawan.

He is among the 55 economists the Journal surveyed from Oct. 4 to Oct. 8, although not every respondent answered every question.

U.S. Worker Demand Softened Over the Summer

 

U.S. Consumer Prices Trail Forecasts as Used-Car Costs Drop

A key measure of U.S. consumer prices rose by less than expected in September as used-car costs fell by the most in a year, potentially bolstering the case for the Federal Reserve to cut interest rates for the third time in three months.

The core consumer price index, which excludes food and energy, increased 0.1% from the prior month, a Labor Department report showed Thursday, below the median estimate of economists. The annual gain of 2.4% matched projections as well as the August increase. The broader CPI was unchanged on the month and up 1.7% annually, trailing projections.

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