(New York)

One of the guiding mantras of the markets since at least 2015 has been to buy the dip. The generally idea was that the market was on an upward trend, so every little downturn presented a good buying opportunity. One of the big problems with the markets right now is that such dip-buying has all but evaporated. With a trade war raging and a recession on the horizon, investors have lost faith that the direction of the market is upward, which means each dip now represents additionally downside risk instead of a buying opportunity.

FINSUM: That core belief in the direction of stock prices has been badly shaken and it is hard to imagine it will return any time soon.

(New York)

The market is in its toughest position in recent memory. Numerous headwinds, none of which are easy to resolve, are stacked against it. Wit that in mind, banks are starting to publish their doom and gloom outlooks for 2019. Nomura has identified a number of “grey swans” (not black) which could topple the market next year. Some of the most interesting risks they identified included a European debt crisis sparked by Italy, oil plunging to $20 per barrel, the end of populism, and an “inflation sonic boom”.

FINSUM: To be honest, we think these are all very unlikely. What is much more likely is a recession accompanied by a trade war.

(New York)

Investors looking for signs of trouble have no shortage to examine. However, one that might have escaped notice is that small caps are on the brink of a full blown bear market. The Russell 2000 has fallen a whopping 17% since its all-time high close on August 31st. The S&P 500, for comparison, is off 10%.

FINSUM: This is really interesting because it doesn’t make much sense. Both the trade war and the economic situation are more favorable to small caps than their larger peers, yet they are falling more sharply.

(Washington)

The moment many investors have been waiting for (or not, depending on how you look at it) has arrived. Rate hikes finally have a chance to slow after their steady rise over the last couple of years. New inflation data has come in showing weakness. Inflation has now fallen below the Fed’s 2% rate, which means the central bank has cause to pause its rate hikes as the economy looks to be on more fragile footing.

FINSUM: There are two ways to look at this. The first is that it takes some momentum away from the current yield inversion. But on the other hand, it could be an indicator that the economy is headed towards recession.

(Washington)

Just a handful of days ago, the US-China trade situation looked to be improving. Trump and Xi reportedly had a breakthrough meeting and China even went as far as to deliberately make a positive public statement in an effort to prop up US markets. However, things have worsened rapidly. First, the US arrested the CFO of Chinese giant Huawei, which angered Beijing, and now the US is close to issuing a travel warning after China detained a Canadian diplomat. The detention is part of an effort to compel Canada not to extradite the Huawei CFO to the US.

FINSUM: We went from public display of détente to a very tense diplomatic situation. The outlook for the trade war, which will be a reflection of all the other issues, looks bleak at the moment.