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Stocks Plummet in Roller Coaster Session

By John Persinos on March 27, 2018

The markets today made me think of “Charlie on the MTA.”

That’s the title of a song regularly performed in the Irish pubs that dot my hometown of Boston. It tells the ridiculous tale of a man named Charlie who’s trapped in a never-ending ride on Beantown’s subway system.

Just like Charlie, investors seem trapped in a wild ride of their own. As we’ve seen so often lately, the markets today put traders on a roller coaster. Stocks went up, up, up — then down, down, down. Losses sharply accelerated in the final hour of trading.

By the closing bell, the main indices were deeply in the red, with the Dow Jones Industrial Average falling back into correction territory. The CBOE Volatility Index (VIX) jumped nearly 7%.

Markets today opened in the green, with the Dow up by 243 points at its session high. For much of the day, hopes ran strong for a resolution on tariffs. But those hopes waned, with each worrisome headline. Stocks struggled for direction but finally couldn’t hang onto gains.

Technology stocks were among the biggest losers, as the Facebook (NSDQ: FB) data harvesting scandal continued to weigh on the sector. The benchmark Technology Select Sector SPDR Fund (XLK) today fell 3.21%.

Facebook today slumped 4.90%, following several days of dizzying declines. Other social media stocks followed suit. Twitter (NYSE: TWTR) plunged 12.05%.

Senate Judiciary Chairman Chuck Grassley (R-IA) has officially invited Facebook CEO Mark Zuckerberg to testify at a hearing on data privacy on April 10. Zuckerberg today signaled his willingness to appear. Grassley is attempting to dragoon additional tech CEOs.

Tuesday’s losses followed a relief rally on Monday that was driven by optimism that a trade war could be averted. But reports surfaced Tuesday that the Trump administration is pressing China to lower tariffs on cars. The White House also wants China to open its market to U.S. financial services. The Chinese are proving resistant.

China rightfully stands accused of protectionism and intellectual property theft. The tricky part is how the West can effectively counter China’s trade abuses without inflicting damage on the U.S. and world economies.

Dangers abound this year. Keep in mind, three of the five biggest single-day point declines of the Dow have occurred in 2018:

February 5, 2018: -1,175.21

February 8, 2018: -1,032.89

September 29, 2008: -777.68

October 15, 2008: -733.08

March 22, 2018: -724.42

Crude realities…

Crude oil prices also fell Tuesday. West Texas Intermediate fell 74 cents to close at $64.81 per barrel. Brent North Sea crude fell 51 cents to close at $69.01/bbl.

Stocks and crude oil prices have roughly moved in tandem over the past several months, as investors perceive strength in the energy sector as a sign that the economy remains robust.

Oil prices have risen by more than 7% so far this month and by more than 5% in the first three months of 2018. Despite today’s decline, crude is on course for its third consecutive quarterly gain, a feat not accomplished since late 2010.

Geopolitical risk combined with production curbs have buoyed energy prices. But the good times in the energy patch may be short-lived. Output among non-OPEC nations is rising. U.S. crude production, bolstered by “fracking,” has grown by nearly 25% in under two years. Oversupply could again topple energy prices.

Propping up oil prices has been the threat of supply disruptions caused by international turmoil. Venezuela is mired in political crisis; Iranian-backed rebels are launching attacks on Saudi Arabian soil; and the hawkish Trump administration threatens to abandon the Iran nuclear deal.

If overseas risk fades, the supply-and-demand equation could come to the fore and depress oil prices again.

For investors, the watchword is volatility. The stock market is an alarming headline (or presidential tweet) away from another crash. Fasten your seat belt. This roller coaster won’t stop anytime soon.

Tuesday Market Wrap

  • DJIA: -1.43% or -344.89 points to close at 23,857.71
  • S&P 500: -1.73% or -45.93 points to close at 2,612.62
  • Nasdaq: -2.93% or -211.74 points to close at 7,008.81

Tuesday’s Big Gainers

Point-of-sale tech provider benefiting from strong retail sector.

Chemical firm boasts rising demand.

Chinese mobile Internet firm announces big push into AI and robotics.

Tuesday’s Big Decliners

Telecom under fierce competitive pressure.

Genetic data firm’s public offering disappoints.

Analysts turn bearish on small-cap energy producer.

Letters to the Editor

Here’s an excerpt of a reader letter regarding my March 23 Mind Over Markets column (“China Syndrome: Stocks Melt Down as Trade Tensions Flare”):

“Perhaps it was not your intention — or perhaps it was my own sensitivity — but the article seems to have an anti-Trump slant. There is no discussion of trade barriers imposed on America, so the less informed reader could come away thinking that President Trump is simply a loose cannon…

Your article ends by fearing China and ridiculing our President. China is not without its own debt problems… This article could have conveyed that markets will be volatile as long as public trade posturing continues. If you feel that a crash is imminent, that would be a valuable insight as well.” — Andy

Andy, my intention in the article was to demonstrate the concerns exhibited by political leaders on both sides of the aisle concerning tariffs.

The vast majority of economists think tariffs are wrong. Even conservative Republicans who ordinarily are allies of President Trump have used stridently negative language to condemn Trump’s tariffs.

In my article, I clearly stated: “Critics of China’s trade practices have a solid case. Evidence abounds that China purloins American technology and strong-arms U.S. companies into handing over intellectual property.”

In past columns, I’ve amply highlighted China’s problems and transgressions. I’ve also warned in recent weeks that the correction is probably far from over. Today’s market sell off helped prove my contention.

Thanks for your letter. I value an engaged readership.

Got an opinion about tariffs? Send me an email: I reserve the right to edit letters for the sake of concision, clarity and civility.

John Persinos is managing editor of Personal Finance. He’s also chief investment strategist of Breakthrough Tech Profits.

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