It turns out that the sunshine on investors’ shoulders makes them miserable. Did Wall Street really think it could enjoy the dog days of summer by singing such seasonal classics as Frank Sinatra’s Summer Wind and Len’s Steal My Sunshine while staring at their accounts venturing to the moon? The giveth-and-taketh mistress, also known as the stock market, had a different idea for summertime fun. The hot sun is shining down on the New York Stock Exchange and melting away the capital gains of retail traders and institutional investors, and not even the breeze created from the Federal Reserve’s printing press is cooling off the triple-digit losses among the leading benchmark indices. What’s happening these days?
Who Irked the Market Gods This Time?
The bulls and bears woke up to a July 19 session with red ink across the board. The Dow Jones Industrial Average cratered more than 900 points, the S&P 500 fell roughly 2%, and the tech-heavy Nasdaq Composite Index plummeted about 200 points. Stocks were not the only investments that took a beating. West Texas Intermediate (WTI) crude oil prices crashed 7%, while RBOB gasoline tumbled 6%. Gold held steady above $1,800, and silver prices dropped 2.5%. The benchmark 10-year Treasury yield declined 0.115% to 1.184%.
In the entire market, the only traders laughing were those with positions in natural gas and wheat. How wheat it is?
Bears and Bulls Go to Dinner
The bears hosted a dinner party over the weekend, with the bulls as invited guests. It turned out that the muscular beasts brought a bottle of Pepsi and a bag of ring dings to the casual affair, irking the carnivoran mammals of the family Ursidae. The latter had expected a bottle of wine and chocolate or cinnamon babka. This may explain the temper tantrum occurring on Wall Street.
Investors are losing sleep over several unfolding events. The first is the resurgence of coronavirus infections, dominated by the Delta variant that accounts for most of the new cases. The United States reported more than 51,000 cases on July 18, the highest total since the end of April. Across the globe, there have been increasing totals, from advanced economies to developing markets. This has financial analysts fearful that the recovery could come to a screeching halt, impacting several industries, including energy, travel, tourism, and food and accommodation.
Next on the list of things to be concerned about is inflation. In June, the U.S. annual inflation rate soared to a 13-year high of 5.4%, while producer prices climbed to an 11-year high of 7.3%. The University of Michigan’s consumer inflation expectations rose to 4.8% in July, and five-year inflation projections also jumped to 2.9%. Treasury Secretary Janet Yellen now thinks that “rapid inflation” could be a fixture in the U.S. economy heading into 2022. However, Federal Reserve Chair Jerome Powell insists that a consumer price index (CPI) is transitory and will soon moderate.
For the nerds in the room, some other technical factors are contributing to the steep losses. Trading volumes have decreased, signaling weakness and investors taking profits and running away. Stocks, particularly the big boys, are overbought. The second-quarter earnings reports have been mixed, especially in the banking sector. Suffice it to say, the margin calls must be fast and furious right now and probably even more painful than viewing all nine of the motion picture monstrosities by the same name.
When industry observers factor in China’s war on big tech, the Organization of the Petroleum Exporting Countries (OPEC) accelerating output, waning consumer sentiment, and Treasury yields on a downward trend, this could be the start of a substantial correction. This was an inevitability after many stocks, fueled by easy money and fiscal support, spiked to all-time highs toward the end of the COVID-19 public health crisis. It will be a rude awakening for the neophyte traders who thought the market goes only up.
It’s a Mad, Mad, Mad, Mad World
How much longer will the Federal Reserve keep the mirage of solid fundamentals and prosperity alive? Will the White House choose to approve a fourth stimulus check, prompting the men and women in tights to dump Uncle Sam’s funds into their Robinhood accounts? Will the Delta and Lambda variants lead to a monumental selloff comparable to what happened in March 2020? Will brokers at 11 Wall Street stand in solidarity with #FreeBritney? So many questions in a world that can only be described as mad. Is this a buying opportunity for the few who sat on the sidelines and missed out on record gains, or is this the end of the everything bubble? Either way, grab the popcorn and Pepto Bismol.
Perhaps the memes, apes, and diamond hands will save the financial markets once again!
Read more from Andrew Moran.