So What’s Behind Today’s Plunge In U.S. Stocks?

Okay, so the announcement of U.S. tariffs on $50 billion of Chinese goods didn’t help the market today. But U.S. stocks, which had been down 1.30% for the Standard & Poor’s 500 at 11 a.m. and down 1.38% for the Dow Jones Industrials, didn’t tumble on President Donald Trump’s actual announcement at 12:30 p.m. To me it looks like the President’s news was shrugged off by the market, at least initially, as not especially dire. The big unanswered question remains what China’s response will be.  But tariffs on $50 billion in Chinese goods when the Chinese export $500 billion in goods to the U.S. is kind of small potatoes.

The big plunge in U.S. markets came at 1:45 p.m. (the high for the Dow Jones Industrials for the day) and at 2:16 p.m. New York time for the S&P 500. It’s been the move into the close that has done the real damage with the Dow Industrials, for example, increasing its loss from the 1.38% at 11 a.m. to 2.16% at 3:15. And then to 1.97% at 3:30. The Dow Industrial Average was down 2.36% or 563 points as of 3:30 p.m. New York time. And at the moment it looks like the decline is accelerating into the close.

This isn’t going to sound very technical or sophisticated but to me the day feels like one where lots of traders and investors decided that they just couldn’t see any near term upside and in the absence of that upside they decided to sell. This pessimism strikes me as a delayed reaction to yesterday’s Fed meeting and a new dot plot that showed increased sentiment at the Federal Reserve for at least two more and possibly three more interest rate increases in 2018–and more rate increases to come in 2019 and 2020.

In this context the details of President Trump’s China tariff proposals aren’t really good news. Yes, the details show that the tariff plan isn’t very onerous. Projections show that by itself these tariffs will wipe a whole 0.1% out of Chinese and U.S. GDP. But just because they aren’t worse than expected, doesn’t make them good news.  There’s nothing here that will add to global or domestic growth.  (And to the degree that they have any effect on the U.S. economy, they will quite possibly add a tiny bit to inflation.)

Add in the funk in the technology sector due to Facebook’s (FBWealth Strength IndexFB is Extremely Flat and trending Up) utterly lame response to news that 250 million user profiles wound up in the hands of Cambridge Analytica. Facebook is down another 2.2% today with Amazon (AMZNWealth Strength IndexAMZN is Moderately Flat and trending Up) lower by 2.22%. Netflix (NFLXWealth Strength IndexNFLX is Extremely Down and trending Down) has dropped 3.16% and Tesla (TSLAWealth Strength IndexTSLA is Extremely Up and trending Up) has retreated 2.19%. The Chinese Internet giants Alibaba (BABA) and Tencent Holding (TCEHY) haven’t helped the sector on the day, falling 10.01% and 5.44%, respectively, on disappointing earnings news from Tencent.

What this all adds up to is a general retreat from risk and selling as traders decide to take profits. Give us a story that says it’s worth holding U.S. stocks (or indeed any stocks) going forward? they’re asking. Don’t have one? Then I’ll sell.

Before the market cracked today, some Wall Street voices were saying that it looked stocks like were setting up for a revisit to the February lows–2581 on the S&P 500 on February 8. With the S&P 500 at 2647 as I write this just before the close today, March 21, that seems like  very smart observation. Right now we’re just 66 points from that low.

Of course, testing the low doesn’t mean we have to bounce off that low and move higher.

If we get to the February 8 2581, then the market will face a test.