Global Stocks: Harris, Trump, Buffett and Newton

• Global stock markets have come under pressure in early August, for a number of reasons. 
• Seasonally, this is a down time for the three major US stock indexes, putting the focus on seasonal analysis as the study of averages. 
• This past weekend saw headlines of a rate increase by the Bank of Japan and news Berkshire Hathaway had spent the past quarter selling stocks, most notably Apple. 

Every day that goes by, I regret my decision from 40 years ago to change majors from Mathematics to Political Science. Not because I was such a good mathematician, I wasn’t. Those that know me best will quickly vouch for the fact I’m not interested in the absolutes required in math. (This made the relationship between me as a grain merchandiser and the company’s meticulous grain accountant a bit strained way back when, to say the least.) No, my regret for going into Poli Sci is that I understand the psychology, and lack of intelligence, that are the hallmarks of US (world?) politics. As the recent break in global stock markets was taking place the last few days, folks on both sides of the US political aisle were already finger-pointing as to “why”. Not surprisingly, we quickly saw phrases like “Kamala Crash” and “Trump Dump” making the rounds, despite the fact neither had much to do with immediate market developments. As we know, though, the folks doing most of the talking about global investment markets aren’t interested in reality. The headlines and catch phrases aren’t as sexy.

As I mentioned last time, the Nasdaq completed a bearish reversal on its monthly chart at the end of July, confirming it has moved into a long-term downtrend. Or has it? I add that question because both the S&P 500 and Dow Jones Industrial Average DID NOT complete bearish reversal patterns meaning what we’ve seen so far in August is “normal” retracement activity, a situation prompting most in the industry to use the cringeworthy word “correction”. As I’ve said countless times, the fact members of the BRACE[i] industry utter the “C” word tells us these folks are only speaking their positions in the market. Are there clues that this could be nothing more than normal retracement activity? Yes there are. 

Let’s start with seasonal analysis. After Monday’s close, my son sent me his seasonal chart for the Nasdaq ($NASX). What we see is the index tends to break this time of year, based on weekly closes only. Has the 2024 edition of the move been larger than normal? Also yes, but again we have to remember what seasonal analysis means. Regardless of if one uses raw prices (most seasonal analysts) or indexes (my seasonal studies), these patterns are based on averages over various time frames. The chart for the Nasdaq compares the current (Sorry Tony D.) market to the previous 3-year, 5-year, and 10-year timeframes. A look at those studies shows the index tends to fall from late July through late September/early October. 

We see something similar with my seasonal studies for the S&P 500 ($INX). Here we see the 5-year index shows a 6% break from the second weekly close of August (this week) through the last week close of September. The 10-year index shows a decrease of 3% during that same time, with the 20-year and 30-year indexes each losing 2%. Here we see the S&P 500 posted a high weekly close of 5,615 the third week of July, within range of the average high weekly close, before dropping about 8% through Monday’s settlement near 5,186. Again, we see a larger than average seasonal move occurring, not that unusual when dealing with averages. 

This brings us to what I call the Vacuum Velocity, the situation when a market abruptly runs out of buy orders and freefalls in search of uncovering new buying interest. We often see this when a market has posted a parabolic rally, seldom broken by selloffs to remove some of the building pressure and provide technical pockets to return to. Here’s what the three major US indexes have done since posting April lows, keeping in mind Newton’s Third Law of Motion (For every action there is an equal and opposite reaction): 

• The Nasdaq increased by roughly 23%, a much larger move than its normal seasonal gains.
• The S&P 500 added 14%, as compared to its average seasonal rally of 8%.
• The Dow Jones Industrial Average ($DOWI) gained 10% versus its usual seasonal move of 5%.

There are a couple other things to keep in mind when we hear and see all the finger-pointing and name calling regarding market moves. First, as I often talked about when many of the same talking heads wanted to make inflation a US-only problem, the August selloff has occurred across global equity markets. The spotlight has been on Japan’s Nikkei as it plummeted 12% to open the week (before recovering 10% Tuesday). Many of the same factors I talked about with the US markets came into play in Japan, with the added hysteria of a rate hike by the Bank of Japan. Here’s where I again applaud the US Federal Open Market Committee for continuing to front-run its interest rate announcements to avoid the type of market chaos seen this week in Japan. 

Lastly, this week’s activity reinforces the idea Sir Isaac Newton was the greatest market analyst of all-time. Not only can we use the Third Law of Motion (see above) but adjusting the First Law of Motion for markets gives us, “A trending market will stay in that trend until acted upon by an outside force”. In this case, that outside force is one of the more powerful in GLOBAL markets. Over this past weekend we found out Warren Buffett and Berkshire Hathaway spent the past financial quarter selling stocks, highlighted by liquidating 55.8% of its Apple (AAPL) stock. Recall my previous piece talking about how Apple could be viewed as THE safe-haven global currency, and we can see what the ripple effects of a single powerful investment entity. 

[i] BRACE = Broker/Reporter/Analyst/Commentator/Economist: Members of the industry only interested in regurgitating faulty statistics and spreading misinformation.

On the date of publication, Darin Newsom did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.