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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1. Moving the markets

All good things must end eventually. That was the case today, as the 4-day win streak was snapped with the major indexes slipping modestly ahead of the Labor Day weekend. Sure, after scoring repeated record highs, a pause was in order, but at mid-day other factors contributed to the sudden downside acceleration.

Abruptly, tariff troubles were on everybody’s mind when news headlines announced, what everyone already knew, that $200 billion of China tariffs were set to be implemented next week after the expiration of the ‘comment’ period. That was enough to finally give the bears some ammunition and south we went, as the VIX and S&P 500 continued their decoupling.

Not reported much by MSM was the bloodbath in the Emerging Markets’ currencies (EM), which accelerated throughout the day. The problems seem to be deepening with the Indian Rupee, Brazilian Real, and the Turkish Lira getting spanked hard. Topping off the charts as the biggest loser of the day was the Argentinian Peso, which crashed, despite a rate hike, but bounced into the close.

These are critical development and, while in their early stages, will spread and likely affect the European banking system and then move eventually across the Atlantic. For right now, they appear to be localized events until, one day, investors realize that we are all financially connected and affected, and that there is no true isolation.

While I don’t expect much enthusiasm tomorrow, it being the last trading day of August when volume will likely slow to a crawl, the EM currencies may continue their radical moves. I for one think that these are important developments, maybe representing the infamous canary in the coalmine, and will stay on top of their changes and the havoc they may be creating.

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