Stocks Fall As Reports Show No Trade Deal In 2019

3 Day Losing Streak For Stocks

Finally, the correction many had been predicting is starting; stocks declined. Namely, stocks fell on Tuesday because of worries about trade. It doesn’t look like there will be a trade deal by the December 15th soft deadline. 

S&P 500 fell 0.66% which brings the 3 day losses to 1.92%. I don’t think the decline is over now that it is clear there won’t be a trade deal soon. Obviously, the situation is fluid though. Reports have changed quickly before. 

President Trump called the decline in stocks on Tuesday “peanuts” compared to the importance of getting a deal. He seems to follow the stock market closely. He’s correct that this was a small move in stocks. This 3-day decline isn’t a full correction yet.

4% Chance Of A Meeting: Trump Says No Deal In 2019

As you can see from the chart below, PredictIt shows there is a 4% chance Presidents Trump and Xi Jinping meet in person by the end of the year. These meetings are usually announced weeks in advance which is why the market sees it as very unlikely.

Fox News reported that the White House still plans to go ahead with the December 15th tariffs on China notwithstanding the goal of getting the phase 1 deal done. President Trump stated, “In some ways, I like the idea of waiting until after the election for the China deal, but they want to make a deal now and we will see whether or not the deal is going to be right.” 

Personally, I don’t think China wants to make a deal soon. I think China is waiting to see if Trump gets re-elected. China is playing the long game. When reporters asked the President if he had a deadline to make a deal, he said, “I have no deadline, no ... In some ways, I think it is better to wait until after the election if you want to know the truth.”

If the 2 sides were close to a deal, the December 15th deadline would have been pushed back a couple of weeks. Since the can wasn’t kicked further, it might mean the 2 sides aren’t close despite previous statements from White House officials such as Larry Kudlow. Trump will have more leverage if he gets re-elected. 

On the other hand, without a deal, it may be tougher to get re-elected. It’s a catch 22. Now, I figured he would do some type of deal to help his poll numbers and then try for a bigger deal in 2021. The situation is at an impasse. This isn’t about minor details that need to be hashed out like some have stated. Philosophical differences and negotiation tactics are preventing a deal.

2020 Democratic Presidential Primary Update

There are a few news events to get to on the Democratic primary. Most important is Kamala Harris ended her campaign. She was polling in the low single digits and had little chance of winning. This means there will be one less candidate on the debate stage on December 19th

Billionaire Tom Steyer qualified for the debate as he got 200,000 individual donations. That means 6 candidates have made the stage. Tulsi Gabbard and Andrew Yang have 3 of the 4 polls necessary to make the stage. Deadline to make the stage is December 12th. I’m predicting Yang will make it. 

At the very least, there will be 6 candidates on stage and at most there will be 8. The amount of time each candidate gets to speak will increase which means opinions on the candidates can change.

Bloomberg is starting to gain in the polls as he is spending 10s of millions of dollars on advertisements. In the last 2 national polls, he was at 6% and 5%. Bloomberg is in 5th place in the average of recent national polls. He can’t make the December debate or any of the others if he doesn’t accept donations. The number of donors has been a threshold to make the debates. 

If he continues to gain in the polls and not accept donations, he will limit the number candidates on stage. I’m guessing he will face significant criticism at the December debate. Biden is in the lead by far now that Warren has lost about half of her support in the past few weeks. He had 16 and 9 point leads in the latest 2 national polls.

Description Of Tuesday’s Action In Markets

VIX increased 1.05 to 15.96 as it finally ended its steak of being below 15. CNN fear and greed index fell 11 points to 63 which is still greed. It wouldn't be surprising if this correction doesn’t end until the index hits extreme fear. That would likely take an additional decline of about 2% to 4%. 

Nasdaq fell 0.55% and the Russell 2000 fell 0.31%. Every sector fell except utilities and real estate which were up 0.5% and 0.74%. That’s the markings of a true risk off day. Biggest losers were the financials and energy which fell 1.32% and 1.55%. Energy usually sells off when there is bad news on trade.

Utilities rallied because long yields fell. TLT ETF was up 2.1% which was its biggest daily increase since June 24th, 2016. 10 year yield fell 10 basis points to 1.72%. It’s now at 1.73%. So much for the 10 year yield supporting the stock market’s optimism this fall. It’s now giving the same signal stocks have given in this 3 day selloff. 

Overall, stocks are much more optimistic still. 2 year yield also fell as it’s now at 1.55%. The difference between the 10 year yield and the 2 year yield is 18 basis points as the curve remains flat. This decline in the 2 year yield explains why the Fed fund futures market now shows there is a 73.4% chance of a rate cut in 2020. Usually when the risk on trade dominates, odds of cuts increase or odds of hikes decrease. 

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