The stock market delivered a big, fat zero in the third quarter despite some huge financial and political earthquakes. The Dow Jones is set to end Q3 flat, with less than 100 points to show for three months of trading.
The quarter from July to September kicked off with recession fears and ended with the launch of a historic impeachment inquiry into the US president. A broader stock market plunge was arguably only prevented by two historic interest rate cuts by the Federal Reserve.
The real miracle is that the Dow held on at all. Here’s what you missed.
Q3: Recession fears and central bank action
July was dominated by talks of recession, triggered by the inverted yield curve. The ten-year Treasury bond yield dipped below the two-year for the first time since the last financial crisis. The classic recession indicator caused panic on the Dow Jones and triggered the worst trading day of 2019 so far.
In Europe, the European Central Bank cut deeper into negative territory, slicing the base rate down to negative 0.5%. Meanwhile, German manufacturing went into contraction.
Trade war fears shook the Dow
The US-China trade war continued to weigh on investor sentiment through Q3. China delivered a gut punch in early August as it “weaponized” the yuan, letting it fall beyond the psychological level of $7. It was seen by Dow traders as a deliberate retaliatory move by the Chinese.
Ongoing protests in Hong Kong added to global macro worries as protestors stormed and shut down the city’s airport.
Oil and repo markets rocked
Outside the Dow Jones and broader stock market, we saw the biggest intraday jump on record for the oil price. A drone attack hit a Saudi Arabian oil facility in mid-September, instantly cutting 5% global oil supply.
And if that wasn’t enough, we saw a mini panic in the bank’s overnight lending market which saw the New York Federal Reserve repeatedly inject $75 billion to prevent a liquidity crisis.
What next for the Dow Jones?
Despite a turbulent news cycle, the Dow ended Q3 flat. So what’s next?
Well, there’s plenty of bearish talk out there. Wall Street firms and insiders are selling equities at a rapid pace. Infamous ‘Big Short’ trader Michael Bury sees a huge bubble in the passive investment market, driven by Dow Jones and S&P 500 exchange-traded funds (ETFs).
On the flip side, Bill Gates is still bullish as hell. One thing’s for the sure, the next three months are likely to be just as chaotic as the last.
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