If we didn't have something to worry about, maybe we would invent something? Doesn't that seem just about right? And if we can't think of something new, let's just recycle what worried us before!
Ever since the market peaked in January's last week, we've been bedeviled by a series of events and exercises that, in many ways, could prove to be very ephemeral in their impact. Yet they've become such consistent sources of worry and discontent that you just can't defeat them.
We've blitzed through the "10-Year-Going-to-3%" crisis, the "Too-Hot-Wage- Inflation" crisis, the "VIX-Short-Squeeze" crisis and now the "Steel-And-Aluminum Tariff" crisis. Each of these "crises" (and I write that word dripping with sarcasm) has taken away a lot of the placid luster that had been the hallmark of this era, and I don't think we're through with any of them. Instead, I think we'll be bedeviled by them again and again in 2018.
Take Monday's session for example. Many people were puzzled by the market's sudden, violent midmorning upturn given that President Trump was even more strident about tariffs than he had been last week.
The market's early morning set-up just prior to this upturn had been a bad one, with almost every stock down or headed that way. Some names were shocking in their collapse. For example, Amazon (AMZN) had dropped 20 points from the get-go, while Alphabet (GOOG) , (GOOGL) slid a quick $12 and Boeing (BA) shed eight points.
It was an ugly day -- or at least it looked that way. But if you'd been following the VIX, you would have seen an incredible collapse in that index minutes before the S&P 500 roared back. The VIX started the day high, but then nosedived less than an hour into the session.
Now I have no idea what made the VIX give up the ghost. An errant trader? Some hedge fund that went bust? Who knows?
However, if you overlay its action with the S&P 500, you'd see that there had to have been some cause and effect to it. There was no other rationale.
Yet if you didn't know any better, you would have thought that the VIX had been finished as a market-moving factor, right? Wasn't the VIX an issue two or three weeks ago, but which had already been put to bed? Well, if you thought that, you would have been wrong.
How about the 10-year U.S. Treasury? It started way up in price and down in yield on Monday, but when the VIX broke down, yields went higher.
Yields had stayed down right through the release of an ISM Non-Manufacturing PMI number that was very, very strong (some would even call it inflationary). But it was the VIX breakdown -- not the PMI -- that pushed interest rates higher.
What's my point? Simple: None of the issues that have caused such volatility -- the 30-year bond, inflation or the VIX trade itself -- have gone away. They're still very much with us, only now we have a trade-tariff variable that will just make the scene even more volatile.
Thursday's White House anti-tariff summit with companies that use steel and aluminum will only make things. It's being organized by Trump chief economic adviser Gary Cohn, who's in open disagreement with the president over tariffs, which is real bad news for his longevity within the administration.
But as we pile up on reasons to sell stocks, we can find ourselves wondering why we should own anything at all. What's the point if the VIX can still be in control, or the 10-year Treasury's yield is approaching 3% again, or that we might get a hot inflation number, or that Trump might go even further than he has on trade?
But then we remember why we own stocks -- the U.S. economy is strong and earnings are better than expected even as most stocks are way down from their peaks. Once the market builds a head of steam for whatever reason, it can then take off because the underlying fundamentals support higher stock prices.
So, when we think about it, let's understand that all of the forces that are taking stocks down can, after stocks are down long enough, be suppressed by earnings' strength. The only problem? Other than earnings, we don't have enough right now to make stocks rally.
Three months ago, the bulls had both tax reform and earnings going for them -- and not much in the negative camp. But now, the bulls have inflation, the VIX, tariffs and the 10-year yield going to 3% all pitted against earnings.
Is there any wonder why Monday's market action was so aberrant? The equation only changes when there's too much credence put on the negatives, as there was when stocks tanked on Feb. 8.
Without something new happening that's positive besides earnings (tax reform just gets lumped in with earnings at this point), I fear that we'll just have rough sledding with periodic upward bursts on good earnings reports mixed in.
That's far from ideal, but it also isn't dreadful; perhaps just an extreme version of "buy the dips as quickly as you can and then sell the rips even more quickly."