Shifts In Investor Sentiment Lead To Big Pain In The Markets

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by: Tematica Research

On this week's podcast, Tematica Research's mixologists, Lenore Hawkins and Chris Versace, tackle the recent shifts in investor sentiment that led to some big pain this week in the US stock market. They trace the impetus for the recent moves back to the data and comments they shared several weeks ago with listeners of the podcast and in their Tematica Research writings.

Simply put, there has been a melt-up in investor worries as a confluence of concerns have come to the forefront of the investing conversation:

  • Signs of a slowing US economy
  • Rising interest rates
  • Growing signs of inflation that call into question the Fed's velocity of rate hikes
  • More pain at the gas pump
  • Potentially even more escalation in tariffs between the US and China
  • Rising Italy-Eurozone tensions
  • What all this may mean for both consumer and corporate borrowings and subsequent spending

These are the same concerns that led to the addition of call option short position in an inverse S&P 500 ETF in our Tematica Options+ service that closed last night up more than 300%.

Despite the painful mid-week drop in the market, we continue to think those factors will result in a September quarter earnings season that is very different from the recent few that preceded it. We strongly suspect these factors will weigh on corporate outlooks, leaving investors to either question how the S&P 500 will deliver on its expected EPS growth rate in the December quarter or take out the hatchet and make some revisions. Both Lenore and Chris think the next few weeks could warrant wearing your five-point harness.

And then, there is all that is going on in Italy and how it's not only spooking the markets and seriously complicating the European Central Bank's plans to bring its quantitative easing program to an end by the close of the year, but also sounding the alarm bells for its citizens. Trade with China and Italy, two things we'll be watching into 2019.