Doomsayers seem to be a dime a dozen anymore and investors seem to be more than just comfortable ignoring what seems to have become nothing but white noise on the topic. The storm clouds are gathering, however in many cases, it’s just another analyst trying to get lucky with the timing so as to capitalize on their potential 15 minutes of fame. Because no one can deny that many of today’s warning signs closely resemble conditions that have preceded many past bear markets. The 20-month exponential moving average (EMA) of the S&P is the indicator currently flashing. Combined with an overbought market, it could become an ominous indicator, like back in 2000 and 2007. The S&P is still trading above its 20-month EMA, for now, but watch and beware.
The China/US trade talks took a turn for the worse today when China woke up to the news that President Trump had blacklisted 28 Chinese tech companies yesterday. The action was taken due to the companies alleged roles in human rights violations against the Uighur Muslim minority. Out of the gate, the DJIA ran down over 300 points. In light of the news and in typical fashion, Fed Chair Powell mounted his trusty steed and rode to the rescue with encouraging statements about his belief that economic expansion can be maintained, that every expansion experiences ‘slower’ periods, and that the Fed intends to expand its balance sheet by purchasing short-term U.S. government debt in exchange for bank reserves, in an attempt to reduce stress in the market for overnight bank-to-bank lending. The DJIA moved to only 200 down for most of the remainder of the day, but by the close, the warm and fuzzy had worn off and the DJIA found itself down over 300 points.
Another element adding to the downturn at the end of the day was news that the Trump Administration will be imposing visa bans on Chinese officials who were believed to be involved in the mass detention abuse of Muslims in the Xinjiang region of China. Specifically, Secretary of State Mike Pompeo announced that, “The United States calls on the People’s Republic of China to immediately end its campaign of repression in Xinjiang, release all those arbitrarily detained, and cease efforts to coerce members of Chinese Muslim minority groups residing abroad to return to China to face an uncertain fate.” Like the DJIA, the S&P added to earlier losses on the news and both stock market indexes posted their second consecutive down day.
As appropriate and immediate as the response might have been to China’s flagrant human rights violations, the activities could not have come at a worse time, as the next round of U.S./China trade talks are set to start on Thursday. Generally speaking, China’s sentiment already suggests that a minimal agreement may be the best we can hope for, but a comprehensive agreement appears all but off the table. Even a minimal agreement may offer hope for the stock market, but no agreement could be a serious bear trigger. The entire scenario draws attention to the growing need for the inclusion of physical precious metals in a modern financial portfolio. Today’s lower prices are just an additional bonus. Call the experts at American Bullion now, at (800) 653-GOLD (4653). But don’t ignore the situation and get caught without a chair when the music stops!