Markets Crushed as “Everything” Sells Off – What to Do Mike Larson | Friday, September 9, 2016 at 4:30 pm
Today was a day when “Everything” sold off. Stocks. Bonds. REITs. Emerging markets. Auto shares. You name it. The Dow suffered its worst one-day decline in almost two months.
The question many on Wall Street are asking is “Why?” And my answer is simple: This has been, as I’ve said many times before, an “Everything Bubble.”
The single, unifying catalyst driving the price of assets of all kinds has been excess central bank liquidity. Anything that suggests the so-called monetary stimulus will level off, or worse, be withdrawn, causes tantrums that impact all the assets that have been swept up in the mania.
Just look at the catalyst for today’s crushing: The European Central Bank refused to extend or boost Euro-QE at its meeting yesterday. That got the ball rolling. Then Boston Fed President Eric Rosengren followed up this morning with hawkish talk about asset overvaluation, and laid out a case for another rate hike in 2016. This is noteworthy because it follows up a devastating speech he gave several days ago highlighting the madness going on in commercial real estate which I pointed out here.
Anything can happen, of course, especially with more Fedspeak next week and with both Fed and Bank of Japan meetings looming later this month. But there’s no arguing we’ve just come through a period of extraordinary calm and complacency in the markets. Now, three major trends are threatening to break investors out of their torpor …
Trend #1: Interest rates are starting to rise. Not by a huge amount, mind you. But the bond market bacchanalia of the past couple of years is showing signs of getting long in the tooth.
Trend #2: The economic backdrop is deteriorating again. From manufacturing to services to jobs, the rebound we saw in June and July is starting to peter out.
Trend #3: Bonds and stocks are starting to trade in the same, rather than opposite, directions. You’d typically expect money to rotate out of bonds and in to stocks in a bullish economic environment, or you’d expect money to move out of stocks and in to bonds in a bearish one. But over the past few days, both asset classes have sold off. That’s a new and potentially troubling development. More losses are coming. Perhaps a lot more. When stocks and bonds move in lockstep, then what’s a trader to do?
My advice: Make sure you have stop losses under your positions, especially in some of the high-flying sectors of late (Safe Yielders, emerging market stocks and bonds, tech, etc.). Use inverse ETFs and select put options as downside insurance or profit opportunities (I’m getting very busy again in my more-aggressive All Weather Trader service, which you can get on board with here.
Most importantly, for your longer-term funds, continue to invest with an emphasis on safety – just like I do in my Safe Money Report. That should help you make it through this period of increased volatility in solid shape.
So what do you think about these emerging trends and today’s beat down? Should we be concerned about what’s going on in the interest rate markets, or how stocks AND bonds are selling off in unison? Or are markets going to find their footing again and march higher into year end? Let me hear about it in the comments section below.
Until next time,
Mike Larson
Poster Comment:
To kill a vampire you must drive a stake thru its heart.