Market turmoil continues. The Dow bounced off lows and posted another loss of 464 points to 22,859 on heavy volume. As they say in Montana, this is uglier than 10 miles of bad road. Consternation over rate hikes and a possible gubment funding shutdown were behind the selling. Utilities continue to rise, and some bank stocks also reversed higher today, but the overall tone remains bearish. The market drop is signaling a possible recession next year, but economic and fundamental data points seem to disagree. The markets are torn between fear and fundamentals.
The fast money Hedge fund crowd has had a rough year. Wealthy investors have approx. $3.2 trillion invested in various hedge funds and according to Bloomberg and other sources they have been bleeding red for most of the year and face redemptions and closures by Dec. 31 causing many of them to reduce risk and seek safety in cash. Adding insult to injury, the new tax law disallows deductions for the management fees of these funds. Hedge funds make up about 10% of market assets so while it is not a huge factor it appears that their woes are adding to the downside possibly till the end of the year. Greenlight Capital’s David “Silky Seamore” Einhorn went from making 20% per year to losing 20% per year in the age of Trump and is turning into a poster boy for what ails the hedge fund industry.
Yesterday’s “tough love” rate hike by the fed is getting panned by Hedge funds but lauded by others to include CEO’s and some economists. It seems that gurus who support the rate hike say it acknowledges the stimulus that will be hitting the economy next year while the softer forward guidance is recognition of the slowing economy in Europe and China. The Fed thinks GDP growth next year will be between 2.3% to 2.5%.
Speaking of Europe, FedEx stock dropped after the company lowered its forward guidance this week. CEO Fred “the gambler” Smith said that while business in the US remains solid the company’s international business, especially in Europe, has weakened significantly. He said that GDP growth in Germany contracted 0.2% in the third quarter. Europe faces issues with Brexit, riots in France, immigration issues and a weak banking system. Germany’s problems might also be related to its dependence on exports to China and car sales to the US where Tesla is proving to be a fierce competitor. FedEx noted it was a good friend of Amazon even though Prime Air just announced it will purchase 20 more 767 jets and convert them to freighters.