Today's Log Entry: Tech Holding Up

Every now and again, when I feel it would be instructive (or at least interesting) for readers, I'll share a market log entry on the blog. Here's this morning's:

9/26/18 (Wednesday)

I came into this week fully expecting a selloff in the Nasdaq Comp, with tech leading the way down. Which is exactly how the week started: The Nasdaq opened more than twice the % lower than the Dow and the S&P. However, after finding a bottom within the first hour on Monday, it actually found its way to a slightly (very slightly +.08%) higher close on the day, while the Dow and S&P closed notably lower.

Tuesday saw the Dow and S&P yet lower, while tech stocks remained relatively flat.

I’m amazed at how tech continues to get a pass (well, this week anyway, last week it under-performed markedly). Clearly, among other things, the fact that the U.S. left Apple out of the latest $200b (tariffs) is viewed as bullish for the sector…

Despite my – and corporate America’s --- huge concerns over trade, the general setup (consumer data in particular) remains solidly bullish. I suspect today's Fed announcement will do little to call the economy's current strength into question. There's virtually a 100% chance we'll see a .25% Fed funds rate hike today along with the suggestion that they'll continue to nudge rates higher for the foreseeable future. However, I do expect the Fed to express concern over the U.S.'s current posture on the global stage. Their own surveys, along with multiple others, tell of mounting concerns over general business conditions in the months to come as a direct result of deteriorating trade conditions.

While I remain skeptical (relative to the prospects for other sectors) on the tech sector going forward (Trump making good on his promise to throw in the rest of China imports should it retaliate [it did] would virtually have to tank the sector), if it survives (doesn't correct) the next few weeks – barring any new news – the shorts (folks wagering on a fall) will find themselves exceedingly frustrated, likely until either closer to year-end or after the first of next year.

As it stands, if no new tariffs are announced (if there are, all bets on correction timing are off), the latest round will go from 10% to 25% on January 1. If it gets to that point, I see odds favoring an early-2019 correction -- much like the one this year from 1/26 to 2/8. 

A hopeful caveat for the tech sector shorts (in fact for any traders who are short equities) -- betting on a near-term dip --  would be the prospects heading into mid-term elections. Some polling currently favors the Democrats… if that continues, we could see the market give way (a correction, as opposed to an all out bear market) under the prospects for the bullish aspects of Trump’s agenda receiving huge political pushback. Sadly, the Democrats view China-bashing to be politically-expedient for them as well. That last point said, once the market begins to roll over under the weight of this trade nonsense, politicians (on both sides of the aisle) will become free-trade advocates seemingly overnight.

As I’ve stated previously, if/when the trade war ends, tech likely moves into fourth place for awhile, as financials, industrials and materials swiftly catch up… with non-US (em especially) rebounding sharply. That is, as long as general conditions are still bullish at the time. If, on the other hand, we reach the point where conditions have rolled over and odds favor recession over continued expansion (we're nowhere near that point at this juncture), even an ending of the trade war won't circumvent the next bear market.