Trump blames stocks sell-off on Fed, Democrats rise in popularity

It looks like Donald Trump, like many post-crisis bulls, has finally realised that the markets go up as well as down.

It looks like Donald Trump, like many post-crisis bulls, has finally realised that the markets go up as well as down. Apparently the US President is so concerned with the sell-off that in a tweet, he quoted a Wells Fargo analyst declaring that the S&P would go back up in the event the Federal Reserve backs off and starts talking a little more dovish. Is this a signal that he is thinking to replace Jerome Powel as the head of the Fed? While a lot of analysts would be quick to point out that the Fed is independent and Trump wouldn’t influence monetary policy, he is being very clever here as he is tuning the negative into a positive (for himself obviously). In a separate tweet, Trump said that the market “is up massively since the Election, but is now taking a little pause - people want to see what happens with the Midterms. If you want your Stocks to go down, I strongly suggest voting Democrat. They like the Venezuela financial model, High Taxes & Open Borders!”

Clearly, Trump is worried that the Democrats have seen an uptick in support ahead of the 2018 midterm elections and is using the stock market sell-off as a tool to influence the votes. But will he be successful? Well, so far, no. US index futures were already up before he tweeted those comments. In fact, the indices were coming off their highs at the time of writing. So, things could potentially get a lot worse for stocks before we see a meaningful recovery.

But it is going to be an action-packed week anyway with lots of data, including Friday’s US jobs report, and company earnings from the likes of Apple on Thursday, as well as two major central bank decisions (namely the BoJ and BoE) all to look forward to. At the start of the week, volatility has remained elevated after the late recovery on Friday failed to materialise into a rally. Let’s see if the upcoming tech earnings provide some much-needed relief. Amgen, Baidu, eBay and Facebook are among the stocks set to publish their results after the closing bell today. Earlier Coca-Cola posted better than expected while General Electric shares fell after a brief pop at the open following the publication of its results.

Technical view: S&P 500

There is no doubt that the bears have been in full control up until now this month. The fact that the S&P could not hold above this year’s earlier high at 2878 was a big warning sign that a sell-off of this magnitude was forthcoming. But was that the top, or a healthy correction? While no one can answer that with any degree of certainty, for short-term speculators the most important question is where we headed next? Well, let’s look at some facts. The S&P has gone back below last year’s high at 2698 and is oscillating around this year’s opening level of 2668. This is not exactly bullish. What’s more, the index is currently residing in the lower half of the Jan-Feb range, suggesting that those who bought the dip earlier this year and didn’t take profit may well be in trouble. However, key support around 2635/6 has held firm for the time being. After three attempts so far, the bears have failed to push the index below this level on a daily closing basis. The bulls still need to push the index above the most recent high and yesterday’s peak at 2706.5 before one could talk up the prospects of the index forming a low. However, if we first see a clean break below that 2635/6 support first, then this would be another blow for the bulls. In this potential scenario, the S&P could drop to test liquidity beneath the previous lows at 2591, 2552 and possibly even 2529 – the latter being this year’s low, hit back in February.  

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