Yesterday was a down day on Wall Street. The Dow fell 632 points and the NASDAQ Composite Index slumped 4.1 percent, extending its losses over the past three trading day to 10.03 percent, pushing it into correction territory.
Today’s a different story. The Dow gained 439 points, and the NASDAQ was up 2.71 percent on the news of basically nothing new.
On the oil front, a key indicator of what in the world is going on, Chinese purchases of oil have been slowing since mid-July, and U.S. demand for gasoline has stalled. With the summer driving season now over, and demand down, oil prices also took a big hit yesterday, slumping to their lowest level in nearly three months. Brent crude fell 5.3 percent, closing at $39.78 a barrel, and West Texas Intermediate futures were down 7.6 percent to 36.76 a barrel.
But today, again on nothing economically substantial, Brent and West Texas Intermediate rose 3 percent and 3.5 percent respectively.
TRENDPOST: U.S. drivers’ demand for gasoline surged from mid-April through June but has remained flat since then, casting new gloom over the world’s oil producers.
Office workers are staying home, many school districts are leaving buses in the garage, and rising COVID case numbers in various parts of the country are keeping shoppers out of stores, analysts note.
After flattening at 8.6 million barrels a day from mid-June through mid-August, demand edged up to 9.2 million during the week ending 21 August. That number remains well below the 9.7 million that marked mid-March as the shutdowns took hold.
Gas demand reflects the strength of other areas of the economy and the current weakness mirrors other data showing consumer spending cooling and the spike in hiring being blunted.
More than 30 U.S. oil and gas companies filed for bankruptcy during 2020’s first seven months. Another 150 could do the same by 2022 if oil prices remain low, warned analysts at Rystad Energy.
TREND FORECAST: As we have continually reported and as Gregory Mannarino has detailed in his “Trends in the Markets” articles, as the global economy sinks into the “Greatest Depression,” the stock market mania is being fueled by the Federal Reserve and Washington pumping in massive doses of monetary methadone to the Wall Street money junkies to keep them on their artificial high.
When will the markets crash?
As we keep noting, as evidenced by the Banksters inventing monetary schemes undreamed of, i.e. zero/negative interest rates, repo market fueling, quantitative easing, buying corporate junk bonds… it is impossible to pinpoint a precise time.
However, the out-of-control investor speculation will end badly, and as we observe the emerging trends, the end is near. Our forecast at this time is that the market meltdown has begun… prepare for an October surprise.
TRENDPOST: August marked the stock markets’ best month since April and added a fifth consecutive month of gains. The S&P has risen 35 percent in this rally, its best run since 1938.
At the end of the month, the Dow sat just 0.4 percent below its level in August 2019 and 3.8 percent below its February 2020 record high.
Ironically, among the best performers were MGM Resorts International and Royal Caribbean, two companies hit hardest by the economic shutdown. Investors showed little interest in energy, real estate, and utility stocks, which all trailed the rally.
The S&P’s record close on 18 August is leading many analysts to believe that investors see the worst of the pandemic and economic shutdown as being in the past and the economy will continue a steady recovery, spoon-fed with cheap money from the Fed, and that corporate earnings will rise in the new year.
But it won’t be only the possibility of a resurgent COVID virus that will test the market in the weeks ahead.
The S&P’s price-earnings ratio reached 25.26, the highest since 2002, and the forward price-earnings ratio, which gauges future expectations, rose to 25.98, a mark not touched since September 2002.
Using the forward P/E as a gauge, the median S&P stock is now valued at the 100th percentile of historical levels, Goldman Sachs reported – the highest level possible. The index itself is trading at the 98th percentile.
Just five publicly traded tech stocks – Alphabet, Amazon, Apple, Facebook, and Microsoft – which rose 37 percent in the first seven months this year, have propelled the market upward.
The other stocks in the S&P 500 fell a combined 6 percent, according to Credit Suisse.
Thus, as evidenced by yesterday’s selloff, when the high-flying tech stocks weaken, the markets topple.
Also, “the Fed is operating at the margins,” said William Dudley, former president of the Federal Reserve Bank of New York. Its bag of tricks to keep the market soaring has “reached the area of very rapidly diminishing returns. That needs to be recognized.”
If investors believe the Fed can always be trusted to bail the markets out of any difficulties, “there is a risk that people are overinvested in what the Fed can do,” he warned.
Double Talk
And while the former Fed Bankster warns the Fed has reached “diminishing returns,” on 3 September, Charles Evans, President of the Federal Reserve Bank of Chicago, called on the deep-in-debt U.S. government to inject more monetary methadone into the system: “More fiscal relief will be needed in order to avoid further damage to the economy,” he said.
Raphael Bostic, President of Atlanta’s Fed bank, agreed federal fiscal aid to the economy is essential.
“I talked to businesses, I talked to folks in the community,” he said. “There is still need out there. It would be a real mistake” to end aid too soon, either in fiscal or monetary policy, he added.
Again, the more cheap money pumped into the system, the higher gold and silver prices will rise.
