US GDP and Australian Retail Sales

As an economist who has been highlighting the divergence between the fundamentals and stocks for some time, that one day drop yesterday on Wall Street is noteworthy. However, it could simply be a short term speculative position squaring hiccup.

Traders were long stocks looking for an easy break higher on the last Fed hike of the cycle, but they did not get clear upside. Then, another piece of bullish market news in that Q2 GDP was stronger than expected. Something I was not expecting. I was way wrong at 1.6%. Apology.

Back to the trading of the day point. It could simply be the case that the market, on a short term basis, was already well long stocks. That this is a classic mini-version of ‘buy the rumour sell the fact’.

This move lower on the day certainly had power. Now some hesitation.

It is always challenging to make too much of a single day’s move. In truth, with the historically obscene concentration of wealth management in the top 3-7 firms globally, a single day’s price activity can on occasion be determined by just one of those funds making even a minor decision. Making trading for others more difficult than ever before. Such developments can feel like random events out of nowhere.

Perhaps, yesterday’s power down day was a combination of both, sell the fact and a large institution thinking it might be time to take some profits.

This move is really interesting because it is either a short term trader shake out, or something much bigger.

The argument for a tipping point in market direction is that that is all the good news we are going to see for US stocks for the time being. Certainly of the magnitude of the Fed’s historic last hike or Q2 GDP surprising to the upside.

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