Market comment October 2018

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David Einhorn's Greenlight Capital sold its remaining shares of Apple due to its heightened valuation and his growing fear of Chinese retaliation in response to U.S. tariffs, according to the billionaire's third quarter letter to investors. "We ultimately sold because our differentiated thesis from 2011 has become consensus," Einhorn said. "We are somewhat worried about Chinese retaliation against America's trade policies."

Einhorn dumps Apple: Fear of 'Chinese retaliation against' US tariffs

We're surprised not more investors are worried about this. Apple has both substantial operations in China, but the Chinese market is also quite important for them so they can be hit on both sides.

Advanced Micro Devices' hot streak hit a brick wall this week. Its shares were on track for a weekly decline of more than 10 percent on Friday, their worst in a year, and on course to fall into a bear market after having dropped nearly 20 percent from 52-week highs. One chart watcher said more weakness could present an opportunity. "It's got to get a little bit more worked off," said Matt Maley, equity strategist at Miller Tabak, Thursday on CNBC's "Trading Nation." "I like the 50-day moving average on the stock. That should be a good entry point. That provided good support back in both June and July." AMD is still a 7.5 percent drop from its 50-day moving average of $25.55. Its shares dipped below that support line during sell-offs in February and March, but held above it through the summer.

AMD, the hottest stock of the year, just fell into a bear market

We'll keep an eye on AMD.

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Even a slight acceleration in wages and consumer prices "could produce an outsized and surprisingly aggressive response from the bond market," Jim Paulsen, the chief investment strategist at Leuthold Group, wrote in a client note. "The 'real' killer for bond investors may yet be forthcoming — the reestablishment of an inflation buffer, or 'real yield.'"

A 'real killer' in bond market threatening after decades in hiding - Business Insider

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A little worrying this:

A U.S. stock market crash is a real possibility. It's been a long time since we have been in an environment where this was on the table. For those of you who know me, I think I've proven that I'm not one of these end-of-the-world guys. We can probably all agree that I call it like I see it and have no directional bias. I walk around daily proud not to care whether the market doubles or gets cut in half. We just want to be on the right side of the trend. The risk for most of the month has been skewed in favor of the bears. As breadth has gotten worse and momentum has confirmed downside pressure, I believe there is unlimited risk in the market right now. Nothing is out of the question. In my opinion, we are in a stock market environment where a crash is entirely possible. Now, just because it is possible doesn't mean it will come.

A US Stock Market Crash Is a Real Possibility | Investopedia

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This really would be bad news..

Chinese stocks have lost more than 30% of their value since the start of 2018. Fears of a slowing economy, rising debts and the impact of US President Donald Trump's trade war have all played a role in pushing the Chinese market lower. However, a wave of forced selling of company shares could see the market drop even more. Hundreds of Chinese companies use their shares as collateral for loans, and are forced to sell when their share price drops below certain levels. Analysts believe this trend is likely to exacerbate the major declines already seen in Chinese markets this year.

Why Chinese stocks have crashed in 2018 - Business Insider

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Everybody is gloomy about the outlook for global growth except the Fed..

Pessimism on the global economy is piling up amid rising trade tensions and expectations the U.S. central bank will carry on tightening despite the tumult in equity markets. Fund managers surveyed by Bank of America Merrill Lynch this month are hoarding cash as they become the most bearish on global activity in a decade, fretting an end to the long expansion. A record 85 percent of fund managers say the global economy is in late cycle, 11 percentage points ahead of the prior high recorded in December 2007. “Investors are bearish on global growth,” wrote Michael Hartnett, chief investment strategist.

Investors Are Now the Most Bearish on Global Economy Since Crash - Bloomberg

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And pessimism can turn into optimism at lightening speed..

Wall Street has performed a thorough autopsy on the latest sell-off, which saw US stocks lose as much as 7% in a matter of days. And their answer is simple: No, this isn't the death blow. In fact, investors should be buying more stocks. In order to reach this conclusion, JPMorgan analyzed client positioning data it says encapsulates overall hedge-fund sentiment. The firm found the following to be true: The October sell-off was focused on US equities. Clients are the most underweight on US stocks versus their non-US counterparts since January 2017. Clients are showing a preference for out-of-favor value stocks, as opposed to their high-growth peers. That all sounds bearish, right? Here's the catch: JPMorgan has found that these client positions have historically been a contrarian indicator.

Stock market strategy: Wall Street says traders should buy the dip - Business Insider

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“We don’t think the correction is done yet. We think attempts to rebound were more short lived than sustainable. Recent price declines in crowded growth, tech, and discretionary have caused enough portfolio pain that we think most investors are playing with weak hands,” he said. Growth names, a favorite among investors until recently, have come under increasing pressure as the market’s focus shifted to value stocks, while the tech sector, which had outperformed other industries this year, is also beating a hasty retreat.

Watch out for ‘dead cat bounce’ in stocks because there’s more pain ahead: Morgan Stanley’s Wilson - MarketWatch

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Going to create some ripples, this..

The semiconductor industry has been struggling on Wall Street amid signs that a slowdown was coming. On Tuesday afternoon, doubters seemed to receive confirmation. Texas Instruments Inc. TXN, said it is seeing a slowdown in demand, its first since 2015, in a third-quarter earnings report after the bell. Chief Executive Rich Templeton, in his first comment in the announcement, proclaimed, “demand for our products slowed across most markets.” TI execs did not believe it was just a problem in the third quarter, as the company’s guidance was lower than expected, and executives were plain in the conference call Tuesday afternoon about signs of a slowdown in semiconductor demand.

Texas Instruments says semiconductor demand is slowing, sending ripples of fear across the sector - MarketWatch

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What's wrong with the markets? Take your pick..

• Policy mistake by the Federal Reserve
• Rising interest rates that could make borrowing more expensive
• A slowdown in global economic growth exemplified in China weakness
• An overall breakdown in stocks, represented in equities trading at multimonth lows
• Midterm election jitters, which have seasonally resulted in some jitters in U.S. markets
• Seasonal October volatility, which has tended to translate into choppy trade
• Worries that the U.S. economy is in the late stages of its expansion and due for a recession
• Brexit
• Italy’s budget crisis
• The looming end of quantitative easing in Europe
• The political implications of the killing of dissident journalist Jamal Khashoggi
• Worries about the health of emerging markets outside of China.
• Signs from U.S. companies that they are see earnings growth slowing
• U.S.-China trade relations which may be exacerbating Beijing’s economic malaise
• Growing deficits partly derived from President Donald Trump’s corporate tax cuts in 2017
• Weakness in the banking sector which hasn’t benefited from rising interest rates
• Softness in transports which Dow theorists tend to follow as a gauge of the health of the market
• A rotation of investors out of growth stocks and into those names viewed as value
• Major cracks in the housing market
• A weak earnings outlook

Why the Dow tumbled 600 points and the Nasdaq fell into correction territory for the first time in 2 years - MarketWatch

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This isn't confidence inspiring, even if the guy is a perennial bear..

China's slowing economy is being overlooked by investors worldwide as the potential source of a major global economic bust in the near future, according to one of the most famously bearish strategists in the industry. Writing to clients on Thursday, Societe Generale strategist Albert Edwards argued that a "hard landing" in the Chinese economy could be considered the "most underrated risk of complacent markets." Edwards, who is well known on Wall Street for his doom-laden predictions for the markets, argues that China's ability to navigate the 2008 crisis fairly unscathed has blinded investors, and made them ignore signs that a crash may be imment.

Albert Edwards says markets are ignoring a major risk in China - Business Insider

Not good, this:

Chinese government steps to boost household income are unlikely to result in a spending boom, our latest consumer survey shows, as respondents show growing sensitivity to negative economic news.  The FTCR China Consumer Index fell another 1.1 points to 69.3 in October, below the series average of 69.8 and marking the lowest reading since January 2017.

Chinese consumers trim spending as worry spreads | Financial Times