Some minor stabilization crept in at the end of Monday’s session but there’s no incentive for buyers in this market (nor should there be) and thus any rebounds should be in the context of ongoing slip-sliding, says Gene Inger Monday.

Recent action was not a retest of recent lows, and not a round-number defense either as that was an effort of a couple weeks back. This was an S&P (SPX) and Dow Jones Industrials (DJI) breaking to lower lows Monday then a late rebound.

S&P 500 turns positive late Monday with help from tech in volatile session.

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Aside the issues confronting the market, it’s difficult because so many stock sectors have already corrected. That doesn’t mean they can’t do more, as far as downside.

And short-term you have the dichotomy of tax-selling of positions people have losses in, juxtaposed to stocks that are swinging but way up from where they may have been bought more than a year ago. That’s a concern for some selling of those as soon as tax years settle in 2019.  

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Facebook (FB) announcing a buyback won’t mean that much. It is a reflection on what companies think can bail them out. Investors at last realize the massaged implications of the buybacks and tax cuts which follow through to a degree, but not with the impact we had previously.  

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It is not that trade alone has derailed the market nor was it just the Fed. A general exhaustion of upside occurred 10 months ago and culminated with the parabolic thrust we often refer to (our first crash alert was late January).

My point is not that China needs to pound the table. Nor does Japan of course need to buy more Treasuries (they have a lot).

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And if I had to note a sidebar sort of influence of the market, it might be the FOX Tucker Carlson blast of President Trump’s competence in a Swiss magazine interview. It’s not the first time Carlson hit on the president’s pomposity. This went lots deeper and while financial media generally ignored it, I think it took a bite. In terms of bites, we have Paul Manafort & Michael Cohen. Details pending. but the market is increasingly aware those are…on the docket.

chart 1

Last week, it was rotational action by that narrow universe of stocks artificially masking ongoing rotational distribution. And finally succumbing to the Oct. 2 crash alert (at the ridiculous high close of the DJIA and S&P). That related more to competitive awakening (and absence of buy programs to artificially inflate a lot of earnings impressions that often occurred without rising revenue).

And of course that did tie-into trade (And that is why the market sees fleeting relief on talk of a trade deal though one is not at hand yet and won’t be for a while).

chart 2 

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The markets are pricing in deceleration of earnings (already underway) and an uncertainty about trade, which would of course help matters.

Reuters: The next worry for U.S. stocks: shrinking profit forecasts.

Markets in addition are concerned about a number of issues which pundits generally of course avoid addressing. The political turbulence of the past two years has not impacted volatility very much. But as mentioned recently, don’t take any solace in that. It won’t be Friday’s sentencing recommendation regarding the presidential attorney Michael Cohen, or Paul Manafort. but a new Congress that will promulgate upheaval and perhaps whatever Robert Mueller comes up with. I’m expressing no opinion on that. I simply think the market’s a bit more wary.  

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We’re likely to see a distressed market environment next year. But also one where some of the cast-of-characters that lead will see rotation too. (Part of it will be the domestic-centric focus I advocated over a year back because of trade and related issues.)

That will be especially visible in technology or especially communications and entertainment as we move to new devices, to greater electrification of vehicles and to competitive streaming services. (Those are known at OTT or over-the-top.).

Of course, 5G is a future backbone to so much of the newer services. (OTT won’t require it but will improve what’s known as latency to make everything smoother and incredibly reliable.)  

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