Many times I have commented about the velocity of change and to expect the unexpected. Equities had their worst month since May 2012 as the most owned momentum stocks imploded sending some issues down almost 30% in a few weeks.
And then there was oil. Oil is now up 29% or $11 from its close eight days ago, the vast majority of the gains occurring since last Thursday, capping the biggest three day gain since August 1990 when Iraq invaded Kuwait.
In fact a late afternoon newswire headline read “Oil is up 29% entering a new bull market.” To remind all, crude has fallen from over $60 barrel on June 30 to under $38 on August 24, a 37% implosion.
What will happen in September? Historically September is the worst month for equities for two different reasons. First the inherent financial strains given the leverage of most retailers because of inventory accumulation before the holiday season. Second, there is capitulation from overly optimistic early year revenue and profit assumptions.
Has such already been discounted? I have opined several times of the possibility of a “market melt up” in the lesser owned names at the expense of the mega capitalized issues. Yesterday the typical stock that has little overseas exposure greatly outperformed.
Most are numb by the events of the last 30 days where the velocity of change has impacted even the most seasoned investors. A rotation as suggested above is not beyond the realm of possibilities.
Today construction spending and the ISM are posted as are auto sales. How will this data be interpreted defined as will it bolster the case of change in monetary policy in mid-September. As I have commented many times does 0.25% really make that much of an economic difference? I hope not for if it does the economy is on weaker footings than most would think.
Last night the foreign markets were down. London was down 2.14%, Paris down 1.91% and Frankfurt down 2.40%. Japan was down 3.84% and Hang Sang down 2.24%.
The Dow should open considerably lower following a selloff in Chinese and global shares, the result of a three year low in a Chinese manufacturing gauge. Oil is off about $1 following the strongest three day advance since the Iraqi invasion of Kuwait and the onset of Desert Storm. The 10-year is up 16/32 to yield 2.17%.