On This Morning’s Selloff (makes perfect sense)

The Dow’s down 700 points as I type. If you’ll recall there was a day last week when the Dow closed up 600 points. Such is the market during volatile periods.

On that big up day last week I wrote that the media will assign credit for the rally to the Fed Chairman’s dovish commentary that morning, but that in my view it was more about getting the Fed out of the way and giving the green light to trade the prospects for a positive outcome of the coming weekend’s Trump/Xi meeting.

In said commentary I suggested that if the two leaders couldn’t produce credible evidence that the trade war will soon be coming to its end that “today’s gains are soon to be obliterated, and some.”

Well, in response to President Trump’s Sunday evening comments, the market woke up yesterday morning (Dow up 400 right out of the gates) thinking that a grand deal was in the works. Since then, however, other than confirmation of no escalation pending further negotiations, the specifics on China’s purchase of ag products and reduction of auto tariffs that the President laid out were met by dead silence from China and clear discomfort among his top advisers when they were called out for confirmation.

So then, while indeed a 90-day truce is a positive, it’s a long way from the credible commitment the market was looking for. Thus, today’s selloff makes perfect sense.

For now, we should view this morning’s action as global markets (traders in the aggregate) voicing their displeasure and sending yet another strong signal to the powers that be that a protracted trade war is in nobody’s best interest.


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