U.S Equity Meltdown - Dow Loses Over 800 point

October 10, 2018 - 5:49pm

 by Gary Wagner

Today, U.S stocks experienced their worst performance since February. Compared to the most significant single-day drop, the Dow’s performance today was still no walk in the park. In February, the Dow Jones Industrial Average plunged 1,175 points for a net decline of 4.6% on the day. Today the Dow scored its second worst day of the year by closing down 831 points, a net decline of 3.6%.

The tech-heavy NASDAQ composite had the highest percentage decline, losing 4.08% in trading today as it closed down 314 points at 7,423.15.  According to CNBC, this is the worst performance of tech stocks since 2011.

Concerns about the trade dispute between the United States and China were cited as the underlying factor motivating investors to stage a selling frenzy.

In a statement written by the Chinese Commerce Minister, Zhong Shan, and sent to Bloomberg news on Sunday, October 7, he alluded to the fact that this trade dispute has now become an out and out trade war.

“On mutual benefit of trade between the U.S. and China: We have noticed that some in the U.S. believe their country has been taken advantage of by China on trade, which has become the pretext behind the trade war started by the U.S. administration.”

With tariffs being implemented on both sides, the former trade dispute between the two superpowers has now moved to the next level. As such, today investors liquidated U.S. equity positions as they moved capital into bonds and safe-haven assets such as gold.

Gold traded modestly higher today. As of 4:45 PM Eastern standard time, the most active December Comex contract is up $6.50 at $1,198 per ounce. Spot gold is currently up $5.10 and fixed at $1,194.20. According to the KGX (Kitco Gold Index), today’s five dollar gain is almost equal parts of dollar weakness and traders bidding up the precious yellow metal.

In fact, gold is the only precious metal to show any gains on the day with silver, platinum, and palladium all trading lower on the day. The most significant decline of the group was in silver which lost 0.56% of value and is currently fixed at $14.28.

The real question becomes as to whether or not today’s selloff in U.S. equities and firmer prices in gold are an indication that traders have reached an inflection point in the way they view the current trade dispute and its potential repercussions. If so, we could see a further decline in US equities, and the beginning of a rally in gold.

Wishing you as always, good trading,

Gary S. Wagner - Executive Producer

Sentiment Indicator:

Gold Forecast: Proper Action

This morning we sent out a Trade Alert 

Buy December gold @ the market (current 1196.40). Place stop below 1178.50 (1176)

Maintain Long Gold. Maintain Stop

Gold Market Forecast

Today’s dramatic decline in US equities are signaling that the trade dispute between China and the United States might have reached an inflection point in which the trade dispute can be more characterized as a trade war. As such today for the first time in a while we have seen a return to favoring safe haven assets over the risk on asset class.

Higher yields and bonds as well as the safety of gold are two avenues that investors are turning to protect their equity. Over the next few days we will see of today’s selloff was a one and done or if it is the beginning of dramatically lower equities pricing until the trade war is resolved.