The Big Story for 2018 was the “topping out” of the global Central Bank accommodation that had buoyed asset markets around the world for nearly a decade. The Fed took the lead in the swing from easier to tighter monetary policy by raising interest rates and starting to run down their balance sheet. Asset markets took notice...and didn't’t like it.
There have been 3 major market events since the beginning of October: 1) stock markets virtually everywhere have been hammered, 2) the US Dollar has been rising against nearly every other currency and, 3) crude oil has tumbled more than 30%.
The major US stock indices opened sharply higher this week (after closing higher every day last week) but within hours of the opening the indices turned tail and fell like a stone...taking out last week’s low by Thursday morning.
Markets are bracing for a possible huge “gap” opening...up or down...Monday morning following the Trump/Xi dinner at the G20 meeting in Buenos Aires Saturday evening. I expect to see a tsunami of political/market analysis Sunday.
WTI crude oil tumbled to it’s lowest price in over a year...closing lower for 7 consecutive weeks. On October 3rd WTI hit a 4 year high ~$77 as the market feared a supply shortage especially given the American sanctions on Iran.
Bonds and gold rallied and the US Dollar dropped this week as Fed Chairman Powell and Vice Chairman Clarida both signaled that the Fed may be less aggressive raising interest rates next year than the market had expected. They both saw signs of slowing global growth.
Stock market price action was an emotional rollercoaster this week with big intraday price swings. The DJIA fell ~2,500 points (9.5%) from All Time Highs in early October to Friday’s lows.
The major American stock indices hit All Time Highs around the beginning of October and have fallen as much as 7-10% since. I’ve been anticipating a correction (if not more) in those indices for the past couple of months as other major stock indices around the world fell and as US interest rates kept rising.
Stock markets around the world tumbled this week. The DJIA touched new All Time Highs last week (Oct 3) but was down over 2000 points at this week’s lows. In just a few days the DJIA gave back all of the gains made since July. Trading volumes on the week were the largest since the DJIA suffered a dramatic tumble the first week of February.
Interest rates surged higher this week with nominal and real yields on the US 10 year treasury hitting 7 year highs. Bond prices tumbled, the US Dollar (USD) rallied and global stock markets fell as a “shakeout” hit speculative excesses across markets. Market sentiment quickly turned from “risk on” to “risk off.”