By Mark Cudmore, a former FX trader who writes for Bloomberg
U.S. Equities Face a Tough Week as the Love Has Gone
It’s going to be a long, tough week for U.S. equities.
While there’s no need to overreact to the Trump administration’s very public failure to reform health care, the evidence suggests that the marginal U.S. stock trader will be selling rather than buying this week.
Even if this wasn’t the key economic policy that equity investors were betting on, the failure is negative in two ways: his perceived ability to press through stimulus has been undermined, and he has even less fiscal ammunition now without health-sector cuts.
The reflation trade isn’t just being undermined from within the U.S. The pronounced slump in global commodity prices is much more damaging. And the U.K. triggering of Article 50 this week will create more negative headlines globally.
The volume-weighted average price for the S&P 500 Index in 2017 is 2321.9 -- less than 1% below where the gauge finished Friday. That means that below that price, the average long from this year is offside. And we’re likely to get there soon since those that are still onside will want to lock-in some profit before quarter-end.
As I argued in this column Thursday, the bullish U.S. equity trade was psychologically broken last week. This is not about being structurally bearish –- it’s about a lack of incentives to attract fresh cash in the short term.
The love has faded. It can be rekindled in a couple of months’ time, but most likely at much lower prices.