As stocks continue to frustrate bears, today one of the greats said “buy the dip” is more powerful now than in 2000 or 2007, reminding him of how people were conditioned in the roaring 1920s to buy any dips.
What? Me Worry?
By Bill Fleckenstein President Of Fleckenstein Capital
May 7 (King World News) – As everyone knows by now, Trump’s Sunday tweets about imposing tariffs on China rattled overnight equity markets and the SPOOs at one point were down about 2%. Once the market opened here in the U.S., the dip was bought (because people have been so well-trained).
Sheep In Bulls’ Clothing
The sentiment to buy the dip seems even more powerful than what we saw in the culminating months of 2000 or even 2007. It constantly reminds me of what I’ve read in history books about the mentality of folks in the 1920s where they had been so well-conditioned that every dip was to be bought…
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In any case, by midday the losses had been cut to a little less than 1%, or about half of what they had been initially, depending on the index. In the afternoon, the indices kept grinding higher and, as you can see in the box scores, the Nasdaq/S&P fell 0.5%, while the Dow only gave up about half as much.
Away from stocks, green paper was basically unchanged, except against the Chinese yuan, fixed income was a bit higher, and the metals were higher overnight, then lower early on today, with silver losing 1% at its worst point compared to a fractional loss for gold. By day’s end, they were mixed with tiny changes.
“Trade Wars Are Good, and Easy To Win”
On the subject of the trade deal, I never had high hopes for much to come of it, but whatever might have been possible is now going to be a bit worse or nonexistent, given the way that Trump is trying to push the Chinese around. I’m not saying they don’t deserve to be cajoled and/or pressured to do something on the trade front that is more equitable to the U.S. than the current situation, but I don’t think that China can be strong-armed, especially in light of that society’s focus on saving face. And of course, the leaders there aren’t running for election next year.
I had thought there was a possibility that once the trade deal was announced, it would be a sell-on-the-news phenomenon, and if there was no deal, the outcome would be similar, but worse. As for today, I think the most noteworthy aspect of various market reactions to Trump was that, after seemingly rallying on every China headline for the past four-plus months, the equity market sort of shrugged and said, “What? Me worry?”
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