Market Watch 8/2/2019
Stock market hit a tipping point after a run of extreme bullishnessThe Federal Reserve’s interest rate cut this week is not the real reason why U.S. stocks are falling. The real culprit is the exuberant mood that has captured Wall Street in recent weeks, which in turn made the stock market vulnerable to a big drop. The Fed’s decision was little more than the straw breaking the camel’s back.
To appreciate just how exuberant that mood has become, consider the average recommended equity exposure among several dozen short-term stock market timers I monitor. (This average is what’s reported in the Hulbert Stock Newsletter Sentiment Index, or HSNSI.) In early July, this average reached its highest level since I began compiling the index two decades ago — 84.2%. And though the HSNSI has pulled back somewhat from that record-high level, it currently is still higher than 87% of daily readings since 2000.
This sustained period of exuberance means that it will take more than just a day or two of market drops to work off the excess optimism. That’s why the stock market was unable to sustain its attempt at a big rebound on Thursday of this week, for example. Commentators will attribute Thursday’s reversal — from the Dow Jones Industrial Average DJIA, -0.37% up more than 200 points to close down almost 300 —to the new tariffs on Chinese goods announced by President Donald Trump. But, as with the Fed’s rate cut decision, these new tariffs are little more than a convenient excuse for a market that was ripe for a fall.
More:
https://www.marketwatch.com/story/heres-the-real-reason-us-stocks-are-losing-ground-right-now-2019-08-01
