(New York)

This market is going against all precedent. December is usually a strong month for stocks, with momentum usually dominating trading. However, everyone knows this month has been brutal, continuing the strong volatility and losses that have plagued the market since October. The same old problems are dogging the market too—rising rates, a trade war, and the threat of recession. What has really gotten worse is that part of the rate curve has inverted, which seems to have really spooked investors globally. Last week the S&P 500 saw it worst performance since March, falling 4.6% for the week.

FINSUM: Here is a question for our audience: what is going to stop this market from falling? There are so many factors pushing the market down, none of them easy to resolve. This makes us worry that there is no floor on prices right now. Even the Trump-Xi “truce” didn’t save things.

(Brussels)

So far Brexit has been the complete mess everyone expected. The whole deal looks like it is hurdling towards a chaotic no-deal departure. Parliament looks very likely to reject PM May’s deal, a vote on which she has delayed in order to save face. However, the EU has just extended a major olive branch by virtue of its judiciary. The top EU court just ruled that the UK can unilaterally back out of Brexit at any time despite the fact that they have formally enacted Article 50, or the official leaving process from the EU.

FINSUM: All they have to do is hold a Parliamentary vote or second referendum and this whole mess would be over. IT is a long way from something that simple happening.

(San Francisco)

Amidst all the gloom gripping the markets, there have been a handful of positive publications about 2019. One of them was just put out by Nomura. The bank published a list of 5 tech stocks that might surge in 2019. The call is an ambitious one given the trend of how tech shares have been going. The shares are not all FAANGs either, which makes them more interesting. With further ado, the list is: Google, Amazon, Salesforce, Broadcom, and AT&T.

FINSUM: Amazon seems like a good call to us, especially after its recent declines. The company is going to see increasing margins as it consolidates its dominant position and earns more recurring revenue. Salesforce is also an interesting business.

(Washington)

Markets plunged on Tuesday, at least partly because of fears over the fragility of the US-China truce on trade. China tried to bolster belief in a deal this week by publicly reaffirming its commitment. However, any hopes of a trade agreement took a definitive nose dive today as the CFO of Chinese giant Huawei was arrested in Canada at the US’ request. Futures markets dove so sharply on the news that the CME had to stop trading for a period.

FINSUM: This could be a very wild day. Market are off to a rough start this morning, but the mood in the afternoon will be the big test of sentiment, in our opinion.

(Houston)

Oil has been whipsawing all over the place lately. For the last several weeks, oil has mostly fallen, with some short term big rallies along the way. One of those was just a couple days ago when Saudi Arabia and Russia announced an agreement to cut output. However, the bottom has fallen out of the commodity as Saudi Arabia’s energy minister announced that he would only favor a small cut. This led to big doubts about whether the efforts will actually lower supply, sending prices spiraling down 5%.

FINSUM: This seems to be a direct consequence of the US’ ability to boost its production to offset any declines by OPEC. Accordingly, Saudi Arabia doesn’t want to lower its revenue by cutting only for the US to take advantage.

(Istanbul)

Alongside the renewed fall in equities, EMs and especially EM currencies have been taking it on the chin. With western markets seizing up and oil prices tumbling it is a double whammy for emerging markets. EMs are hurt by declines in oil, but are doubly wounded by the risk-off mood that is pervading markets. Treasuries have seen big yield declines as investors flooded in, and that has meant outflows from EMs, which have seen their currencies drop considerably. The Rand and Lira have been hurt most.

FINSUM: This ship probably won’t be righted until western markets exercise their demons.

(New York)

Stock markets are taking a pounding right now. Where should investors turn? One’s first instinct is probably to look for ten-year Treasuries. However, that safe haven may have finally worn itself out given the current rising rate paradigm. So where should investors turn? Look at short-term (two years and under) securities, both sovereign and corporate. The two-year Treasury yield is now 2.82%, and funds at the very short end of the curve have positive returns for the year even though the rest of fixed income has had a tough time.

FINSUM: Short-term bonds look very favorable right now. Yields are strong and they have little rate sensitivity. So long as one avoids too much credit risk, they look like a good safe haven.

(New York)

There is a lot going against equities right now. A trade war, rising rates, a weaker 2019 earnings outlook, a fading tax effect, and high valuations. There is one more to add to the list, and it could end up being the worst of all—stocks are now yielding significantly less than short-term bonds. Two-year Treasuries are yielding 2.82% while the S&P 500 is yielding just 1.9%. Yields better than bonds had been an incentive for investors to put money in stocks for years, a phenomenon called “TINA”, or “there is no alternative”.

FINSUM: With all the volatility and headwinds facing equities, and relatively unattractive yields as well, it is hard to see what force is going to swoop in to help out stock indexes.

(Houston)

If you haven’t been paying attention, something very interesting has been happening in the oil market. That development is that the US has quietly replaced Saudi Arabia as the world’s largest oil producer. That is a major development because the US is outside of OPEC and thus is a major counter-balance (headache) to Saudi Arabia and OPEC’s ability to control oil prices. Each time Riyadh wants to cut output to boost prices, the US can raise its production to offset the cut.

FINSUM: The US is in a strategically superior position for the first time in a very long time. This whole dynamic is symptomatic of the new era of bountiful oil. We ultimately believe that prices will stay well below $100 for several years to come because of how supplied the market is.

(Beijing)

One of the scary facts of yesterday’s selloff was that there wasn’t a single identifiable catalyst for it. That said, one of those that had a certain effect was growing doubt about the strength of the Trump-Xi trade truce. Well that concern got a bit of support today as China publicly reaffirmed its commitment to the trade détente. Beijing said it was working toward a trade agreement with the US by March 1st, a sign that it intends to follow through on the promises made by Trump and Xi over the weekend.

FINSUM: We think it is a good sign China made this kind of statement. It seems an obvious reaction to the big stock market drop yesterday, but the fact that they care to help out is a good indication of where things are heading.