Yesterday’s action was a major headfake. The futures opened higher, the market had momentum, and the money opened with them. I thought it might be a 2% day, and a couple of (respected) bearish analysts were calling for 5 – 7 % more, which would take us to Red Heart Two. (Notably missing from the chart.)
The action turned sour immediately and we went from up 2% to down 2%, and in bearish (grinding) fashion. Resisting the urge to try and call the bottom I just watched, the hearings that is. Now there is a lot of (news) material which makes this bear market go, and this is a news driven market, since Trump anyway, and the use of HFTS and algorithims. Why does the market always go when Jerome Powell speaks? I don’t know, ask the machines.
Anyway he quits speaking and here we are again. There is also something more direct of which I have spoken, the markets rather uncomfortable relationship with politics. The drop yesterday did coincide with the unplanned day of testimony from one witness, Cass Hutchinson, top aide to Mark Meadows, Trump’s Chief of Staff regarding the time line and to confirm or wrap up all these disparte bits of information in a single narrative. So it was a very effective way to present the information.
The market doesn’t like this, this hurts business. Without making partisan hay out of it the market likes continuity. When Trump failed to get a second term, that was one thing, if Biden fails that will be another. Investors are apprehensive. Liquidity concerns are political concerns, liquidity shrinks if government spending contracts. The hearings tend to rile up the red state extremists, who is turn agitates the progressives who are turning on Biden. The low approval numbers do not reflect how much MORE Republicans hate him, they reflect his lack of support from his own political allies.
Meanwhile one can’t be sure if this is Watergate, or Iran Contra. That ultimately secured GHW Bush as the successor to Reagan and helped guarantee his failure at a second term. The market of the 1980s was lifted by unvetted deficit spending, deficit spending in a non emergency context, which led to expansion of the money supply, the dollar as reserve currency, and a cease fire in the Cold War. Now maybe all those things are unwinding.
There was also the demise of the GOP, and perhaps that organization will rise from the ashes, expelling Trump from their narrative would help that along. Democrats had their moment in 1968, they didn’t have a two term president until 1992. They had another moment in 2000 when the Bush admin took control of all three branches, and then watched passively while the Republicans crashed the go-kart on the first lap. The US really need a parliamentary government, this winner take all stuff ain’t working.
Here’s the one minute chart, and has since gotten choppier. The Jan 6 hearings are having their effect and even Jerome generating his dulcet tones for the algorithm machine cannot fix this. The gap at 400 remains the immediate target, now that the up-gap has closed however, the selling can continue.