KINGSTON, NY 28 March 2018—If you only follow the mainstream business news, you believe that every significant upward or downward move in equity markets was a direct cause and effect of a "breaking news" event that day.
For example, when the Dow went haywire Tuesday falling more than 350 points after being up 250 points, CNBC blamed it on poor performing tech stocks. But just a day earlier, when the Dow surged 669 points, CNBC reported: "Wall Street shook off its trade war worries from last week and markets surged."
We have repeatedly shown how the mainstream media's one-reason-a-day logic for why markets decline or rise – Gary Cohen resigning, what's going on with North Korea, or what President Trump is tweeting – is simplistically short sighted.
And contrary to their headline games, we had forecast a market correction would occur as a result of rising interest rates and over valued and over leveraged equities.
Indeed, equities have been on a down trend since early February over fears that higher wages and higher inflation would push the Fed to aggressively raise rates.
We have also noted that as rates rise higher, the massive public, corporate and personal debt loads will grow heavier.
Already, auto and home sales are declining as interest rates rise. And as a result of the minor rate increases in the US last year, refinancing activity in the overall mortgage market declined 12 percent, while mortgage origination volume sunk to 1995 levels.
Our motto is "think for yourself." Break down the facts. Assess how they're connected and determine market direction based on the underlying data that outweighs the one-day news events that the mainstream media would have you believe is the reason for market swings.
For example, when the Dow tanked 700 points March 23, here's how the headlines read:
- "Trump confronts China on trade, raising fears of a global slowdown" – Wall Street Journal
- "China ready to hit back with tariffs" – Financial Times
- "Down plummets 700 points on fears of trade war" – Reuters
Instantly forgotten by those headline writers is what they wrote on March 22, after the Dow fell from a 250-point high to close down 44 points on March 21, following Federal Reserve Chair Jerome Powell's press conference:
- "Powell lifts Fed rates and raises forecasts as growth strengthens" – Financial Times
- "Market Teeters and Falls as Fed Raises rates" – New York Times
- "Stocks Fall After Fed Raises Rates" – Wall Street Journal
And as for blaming Trump's proposed $60 billion tariffs for dragging down the markets, with the US facing a $375 billion merchandise trade deficit with China, $60 billion never posed a legitimate threat to market stability.
Again, hooked on a headline grabbing state-of-mind, the media distort the significance of daily news events and routinely ignore fundamental market determinants.
TREND FORECAST: We maintain our forecast that the Trump Rally has peaked. Absent a wild card event, the rate of stock buy-backs, pace of interest rate increases and scale of corporate earnings will most directly affect market performance.