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.”

“Risk On” is the prevailing market mood and it’s been showing up everywhere:

Trade Wars with China: Bloomberg reported mid-day Friday that Trump had instructed aides to proceed with tariffs on about $200B more of Chinese products. Market reaction was surprisingly muted. US stocks fell back (a bit) and the US Dollar rallied (a bit) on the news.

Emerging Markets, which have borrowed trillions of US Dollars,  have been in the spotlight with some EM currencies down hard. For the past few months I have referred to the weakness in 2^nd and 3^rd tier currencies as the “stealth strength” of the US Dollar.

Contagion risk inspired a sharp swing to “risk off” across asset classes this week. The US Dollar Index (USDX) surged to 14 month highs while the “stealth strength” of the US Dollar against 2^nd and 3^rd tier currencies was spectacular.

Summer doldrums...low volume choppy price action with the occasional headline driven flurry of activity. I was away late last week for a family event, started this week flat, did a little in-and-out trading and ended the week flat. I’m expecting some serious market moves once we get into September so I’m watching several markets now for possible foreshadowing clues.