The Dow Jones roared back from its session lows on Thursday afternoon, as contradictory trade war headlines left the stock market volatile.
However, noted economist Nouriel Roubini warns that the stock market has diverged wildly from the economy’s underlying fundamentals.
All three of the major US stock market indices traded in the red ahead of Thursday’s close, but losses were muted compared to earlier in the session.
The Dow Jones Industrial Average dipped 17.22 points or 0.06%. The index last traded at 27,803.87 after sliding as low as 27,708.34 this morning.
The Nasdaq led the declines with a 0.13% loss, while the S&P 500 was down around 0.07%.
A rally in the USD crushed the price of gold by 0.7%. The price of oil was unaffected, and crude jumped another 2.6%.
Helping to erase the early losses in the Dow Jones, news broke that the Senate had the votes to avoid a costly government shutdown. This is good news for investors, who have already witnessed first-hand the damage that a closed government can do to markets.
Skyrocketing impeachment odds receded slightly, even as renowned Russia-hawk, Dr. Fiona Hill, delivered a powerhouse performance in Congress. Nothing as important as Sondland’s “quid quo pro” comments emerged, limiting the effect on the Dow.
Mixed signals are the name of the game on the trade war front. Both the United States and China are trying to ensure that they can achieve a deal that steadies wobbling risk sentiment, while at the same time not conceding too much ground politically.
Thursday saw a couple of encouraging soundbites from the Xi administration. But the Dow has clearly run out of patience, as the stock market did not rally after Reuters broke this headline.
In an alarming take – not just for the Dow Jones, but all stock markets around the world – economist Nouriel Roubini said that he believes that investors are out of touch with economic realities.
The disconnect between financial markets and the real economy is becoming more pronounced. Investors are happily focusing on the attenuation of some short-term tail risks, and on central banks’ return to monetary-policy easing. But the fundamental risks to the global economy remain. In fact, from a medium-term perspective, they are actually getting worse.
Roubini – who has been nicknamed “Dr. Doom” – adds that this disconnect won’t endure forever, and the debt bubble will eventually exact a reckoning.
Whenever the next severe downturn occurs, high and rising private and public debts will prove unsustainable, triggering a wave of disorderly defaults and bankruptcies.
It was an extremely confusing picture in the Dow 30 on Thursday.
Chevron and Exxon Mobil were once again on the rise, enjoying a second straight day of gains in the price of crude oil.
Interestingly, Apple stock failed to rally despite some headlines overnight that suggested Tim Cook’s hard work to charm Donald Trump was bearing fruit.
With plenty of concern about the tariffs that could come into effect in December, AAPL bulls clearly need to see more than just speculation to push Apple further into record territory.
However, Caterpillar recovered more than 1%, indicating that perhaps the positive headlines out of China were having some kind of effect on the Dow Jones.