1. Moving the markets

The major indexes headed south again led by continuing weakness in the tech sector. However, the Dow managed to buck the trend by ending in the green by a small margin. The S&P’s attempts to conquer the unchanged line were rebuffed, while the Nasdaq didn’t even come close to stage any kind of lasting rally and dropped -0.91%.

Not helping matters was softness in global markets with indexes in Europe and Asia heading south over mounting concerns that some of the struggling emerging markets may affect the economies of healthier EMs as well.

In focus today were Turkey and Argentina, whose currency followed the law of gravity, as confidence waned and spillover fears worsened. As I posted before, this drag will get worse, since no viable economic solutions appear to be on the horizon.

On the trade front, the jawboning with Canada intensified a notch, as Trump threw down the gauntlet by declaring that he is ready to move forward without Canada. Then there is the issue of the $200 billion in Chinese tariffs, which could be imposed as soon as this week.

Domestically, the FANG stocks headed south again for the 4^th day in a row, its longest losing streak in 7 months.

I have talked much about the disconnect of various indicators. Here’s the latest update charting the S&P vs. the 30-year bond yield. As you can see, right now it appears that both are heading towards each other, and we may see a syncing soon. To be clear, this means that yields continue their path higher, with bond investors losing out. Why?  When yields are rising, bond prices are falling.

On deck, and certainly capable of moving markets, is tomorrow’s jobs report. This promises to be an interesting event and, judging by today’s weak ADP numbers, expectations for 200k new jobs added in August, may be a little too optimistic.

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1. Moving the markets

The major indexes started the session in the red caused by a sharp decline in the tech sector (over 1%), which was its worst day since July. The downside assist came from social media executives (FB, TWTR), who testified on Capitol Hill about misinformation and the battle for truth in reporting.

Not helping were the continued trade discussions with Canada, as both parties dug in and appeared hardnosed about their views of what terms are acceptable and which ones are not. The Canadian’s reiterated their stance that “no Nafta is better than a bad Nafta deal for Canadians, and that’s what we are going to stay with.” So, that appears to be a dead-end street for the time being and another negative for the markets by undermining confidence in equities.

On the other hand, tech has been on a hot streak for most of this year, so a pullback based on profit taking, since some of the big banks and brokerage houses have suggested their clients to “lighten up on tech exposure,” may have contributed to the decline.

Looking at the big picture, global stocks in general (Asia and Europe) are having a down day, as contagion concerns from the Emerging Markets (EMs) appear to spill over into the developed markets. With the Fed being on course to continue with its rate hike program, which will affect EMs negatively, the turmoil is likely to worsen in the future. For reference, we sold our holdings in EMs back in February and currently have no exposure at all.

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1. Moving the markets

Despite several attempts, the major indexes could not gather enough bullish momentum to break above the unchanged line and stay there. Instead, it was a see-saw session that saw the indexes ending up with minor losses.

Trade tensions with Canada contributed to the uncertainties in the market as Trump threatened to “leave Canada out of any new NAFTA pact.” The talks were halted with no tangible agreement, but at least the parties agreed to meet again. Regarding China, the tariffs of an additional $200 billion will begin on Thursday.

We may see some more sideways action until Friday when the employment report will be released. As one portfolio manager opined: “It should set the tone for the remainder of the month, from the Fed meeting to views on inflationary pressures and overall growth. The betting is more of the same, good numbers, good equity markets, and still growing economy.”

Just because most MSM does not report it does not mean the Emerging Market crisis has been resolved. Far from it. While Turkey has been relatively quiet, today it was the South African Rand and the Argentine Peso, both of which were in freefall this morning causing their bond yields to jump and their stock markets to drop. This is a developing story, and I firmly believe that this contagion will go global.

Right now, however, the contagion is just starting and has not yet affected the western industrialized nations keeping us invested in the markets, until there is a clear change in long-term direction.

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