(Beijing)

Happy new year—the Dow opened down 350 points this morning on fears over a Chinese slowdown. New data is out of the country which shows that Beijing’s manufacturing sector is contracting, a sign that tariffs may be flowing through to the economy. That makes markets hope more than ever for a trade agreement between the US and Beijing, which would likely alleviate the economic strain. The S&P 500 has fallen 20.2% on an intraday basis, an official bear market.

FINSUM: The implications of a big Chinese slowdown are serious. Firstly, how does the country react politically to what they likely view (or will project) as a US-imposed slowdown? Secondly, how much does the slowdown drag down the global economy?

(New York)

If you are a fan of behavioral economics and the way investor psychology impacts the market, then there is some interesting new data to look at. The amount of people searching the internet for “recession” and “bear market” has been spiking. People have been increasingly searching for such terms and their level of searches has hit its highest since 2008. Tweeting activity on such topics has also nearly reached a new peak in records going back to 2010.

FINSUM: This may seem like statistical noise, but when you consider that millions of Americans are calling their advisors in a panic, you can start to see how such concern starts flowing through to indexes.

(Washington)

If that headline sounds like relief to your ears, read further. While there are no clear signs out of the Fed yet (other than increasingly dovish talk), new data is showing that the Fed may cut rates in 2019. The forward spread shows that traders are anticipating a rate cut at the beginning of the year. Two-year Treasuries have seen their yields slip below one-years’. This is the first time this has happened since 2008. According to a market strategist at Pimco, “This is a crystal ball, it’s telling you about the future and what the market thinks of the Fed and what it will do with its policy rate”.

FINSUM: We don’t think the Fed will cut in the first quarter unless something more drastic happens, but we are quite sure they won’t hike.

(New York)

Some investors may be breathing a sigh of relief this week alongside the huge rally. The massive gain of 5% earlier this week was the biggest single day gain since 2009. However, taking a broader view, such major gains have usually mean the market is in deep trouble. To give some context, every comparable rally in stocks since 1900 occurred during the bear market of 2008-2009. Overall, it was the 9th time the market reversed an intraday move of at least 1 percent this quarter. That is the most since the US downgrade in 2011.

FINSUM: In itself, we think the rally means precisely nothing for markets. Investors’ emotions are whipsawing all over the place and the market is yet to find solid footing behind any positive narrative.

(New York)

While the stock market is getting all of the attention, the bond market is experiencing a lot of turbulence as well. The riskiest corners of the debt market, including junk bonds and loans, are on pace for their worst month since the US downgrade in August 2011. High yield’s spread to Treasuries has surged a whopping 110 basis points since the start of the month, and unlike in stocks, there aren’t signs of a rebound. The average yield on the index is 8%.

FINSUM: It is reasonable to be nervous about credit right now given the huge volume of issuance in recent years and the pending threat of a recession and accompanying earnings slowdown.