The stock market has begun to show the classic symptoms that professional men call manic depression.
Its mood swings a lot… and its mood swings are extreme.
The Dow Jones Industrial Average fell 510 points yesterday morning.
Then the pendulum at the other extreme sends 720 manic points to it.
At the same time, yesterday was the 26th time this year, and Standard & Poor’s has risen 1% or more in either direction.
Six of these mood swings have caused a decline of at least 1% – plus the sum of the past two years.
Something is wrong between ears.
Now let’s put on the white coat of a clinician, sit by the patient… and take the diagnosis of a quack…
The patient immediately revealed the source of his anxiety transaction.
Since the White House began to declare tariffs, it has admitted that it is a nervous breakdown.
It laments that a trade news is enough to make it in any direction, whether it is up or down.
Half the time it was full of tears.
The other half is filled with joy beyond all descriptions of grandstanding.
As proof, we immediately turned to yesterday’s mad depression episode…
After China announced plans to impose an additional 25% tariff on U.S.$50 billion U.S. exports, the stock market rose earlier yesterday.
As mentioned above, the Dow Jones Index fell more than 500 points to start the day.
A frustrating problem solved the entire enterprise.
However, then the first sunlight broke the haze…
The eternal sunny Larry Kudro – Trump’s new economic advisor – took the radio to assure the market that everything will expand:
“I can understand the stock market anxiety. I understand,” Dr. Kudlow said sympathetic to the semi-suicidal patient.
“But don’t overreact,” suggests Kudlow.
“There is no trade war here,” he continued.
He promised that tariffs to raise tariffs will lead to “better economic growth, more transactions are under way, and both parties’ wages have improved.”
Does Kudro believe what he says? We cannot say it.
Since he took office at the Reagan administration, he has been a drummer of free trade.
But we also know where a person is… It often depends on where one person is sitting.
Now, Mr. Cudlow is sitting near President Trump in the Oval Office.
In any case, his soothing chatter yesterday had a strong influence on market sentiment… By 9:30, the stock was higher.
By the close of the six and a half hours after the close, Dow Jones soared about 720 points.
The mania phase continues into today’s trade.
Dow Jones rose 241 points.
The Standard & Poor’s Index rose 18 points and the Nasdaq 34 points.
But there will always be tomorrow … and the next day.
Will other trading news push the stock to another stage of depression?
Differences in expert opinion.
In the camp of optimism, we have Keith Parker, U.S. equity strategist at UBS:
“At this point, given the market trend, it is expected that the possibility of further trade escalation will be reduced. Our view is that many of its prices.”
In this camp, we also found a Raoul Leering, head of international trade analysis at ING:
“China is likely to eventually reduce losses and is willing to give Trump something.”
On the other hand, in the pessimist camp, we found our own Jim Ricks:
“So far what we have seen is just the opening scene of the upcoming trade war. Think of it as a war between Lexington and Concord, which opened the prelude to a revolutionary war. Greater tariffs and penalties waiting.”
So fragile mind balance.
But let us put additional pressure on this matter…
The latest employment report comes out tomorrow morning.
What if it is disappointing?
What’s worse… if it’s exciting?
The good help of wage inflation may trigger the Fed’s more aggressive interest rate increase.
An additional rate hike may cause the patient to go into another cycle of depression.
In early February, inflation shocks in the employment report generated similar concerns and the stock “corrected.”
Of course, we cannot predict the next wave of the market – up, down or sideways.
But we have prepared the dose of Prozac… just in case…