Market Direction: BEARISH alert
issued 11/23/2018
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The stock market is declining, are the FED rate hikes why?
Treasury Secretary Steven Mnuchin
has weighed and measured the recent destruction that put the Dow Jones
Industrial Average on track for its worst December since 1931, and he appears
to have drawn his own conclusions as to the impetus.
Mnuchin during a Tuesday interview with Bloomberg News in
Washington said that the effect of the financial-crisis-era Volcker
rule and high-frequency trading have combined to sap liquidity in the market
and insert an unprecedented measure of volatility in assets.
‘In my opinion, market structure has led to a lot more
volatility. Part of this is a combination of the market presence of
high-frequency traders combined with the Volcker rule.’ Treasury Secretary
Steven Mnuchin
The Volcker rule refers to the
controversial standards put in place to prohibit banks from trading for their
own accounts, in the wake of the 2007-09 financial crisis, while high-frequency
trading refers to superpowered computers engineered to execute transactions at
lightning-quick speeds, which has become arguably the dominant force in the
market over the years since its advent.
Back-to-back declines of more than
500 points in the Dow DJIA, -1.49% , beginning Friday, pushed the
blue-chip benchmark deeper into correction territory, usually defined as a drop
of at least 10% from a recent peak.
In fact, if the Dow were to finish
the month at its current level, down about 7%, it would mark the worst December
since 1931, when it fell 17.01%, according to Dow Jones Market Data.
Meanwhile, the S&P 500 SPX, -1.54% and the Nasdaq Composite COMP, -2.17% are on pace for the worst start for
any December since 2008, largely on the back of fears about sluggish global
economic expansion, trade tensions between Beijing and Washington, and a
Federal Reserve that is apparently set this week to lift borrowing costs for a
fourth time in 2018. Those factors have further unnerved investors who
had already grown accustomed to easy-money policies and are now fearful that
the central bank may be too eager to reset rates closer to normal historical
levels.
On Tuesday, the stock benchmarks managed narrow gains.
To be sure, Mnuchin isn’t the only
one to peg Wall Street’s spate of volatility to market structure. Fed Gov. Lael
Brainard in a speech earlier this month
said computer-driven trading in the Treasury market may also be fueling erratic
swings, sometimes referred to as flash crashes. Brainard, in contrast to President
Donald Trump’s Treasury secretary, said the post-crisis banking laws have not
contributed to liquidity problems.
Mnuchin’s comments came with Trump
having squarely — and repeatedly — placed blame for the swift retrenchment in
markets on the shoulders of Federal Reserve Chairman Jerome Powell, whom the
president has accused of undermining his efforts to bolster economic growth.
(Trump chose Powell over incumbent Fed chair Janet Yellen
in 2017.)
A rate increase on Wednesday is
anticipated, but a number of market pundits have cautioned that if the central
bank becomes too aggressive in the pace of its rate increases, it could derail
the stock market and thrust the economy into recession.
The all-time lows since our initial
recommendation to go SHORT
this market. Here is how the markets have performed:
Stock Market
Direction Recommendation (11/23/2018)
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Dow
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down 1,123.31 points a 4.63% gain
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12/19/18
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Nasdaq
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down 352.48 points a 5.08% gain
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12/19/18
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S&P 500
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down 143.60 points a 5.45% gain
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12/19/18
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Related Link: http://www.stockmarket-direction.com/
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