During his podcast earlier this week, Peter Schiff said “the party is over” in the stock market. As if on cue, the Dow Jones is off to the worst start in a quarter since the 2008 financial crisis.
The Dow plunged 494.4 points on Wednesday, a 1.86% decline. Combined with Tuesday’s 343.7 point drop, the Dow is down more than 3% in two days. The 800-plus point slide is the worst start to a quarter since the last three months of 2008. In the fourth quarter of that year, the Dow fell 19.4%.
Q4 2008 was the worst quarter for the Dow since the Great Depression. Peter noted in a tweet that even the beginning of Q4 2008 didn’t start this badly. And he asked a very poignant question:
Given that the Fed is out of ammo, how will it keep the house of cards from toppling this time?”
Earlier in the day, Peter pointed out that the Fed has already used up much of its ammunition.
The Fed bailed out investors by reversing policy, moving from rate hikes to rate cuts, and going from QT to unofficial QE. But with those bullets fired, what’s left in the chamber if the market tanks again in Q4 2019?”
The Dow wasn’t alone in its plunge. The S&P 500 dropped 52.64 points on Wednesday, a 1.79% decline. It is also off to the worst start to a quarter since 2008. The Nasdaq fell 123.44 points and is down 2.7% through the first two days of the month. The Russel 2000 shed 3.1% over the last two days.
As Peter pointed out in his podcast, everything was all sunshine and roses as September came to a close.
For a couple of days, the economic news wasn’t quite as bad as it could have been, or maybe some of the numbers actually were a little better or beat the numbers, and I think there was some idea that, hey, maybe the economy is not as bad as some people had feared, but then reality reared its ugly head at 10 a.m. when we got the ISM Manufacturing numbers.”
US manufacturing dove to a 10-year low. The ISM index of national factory activity dropped 1.3 points to 47.8 in September. That was the lowest number since June 2009 – as the US economy was emerging from the Great Recession. A reading below 50 signals manufacturing is contracting. The weak September number follows on the heels of a 49.1 print in August. Analysts had expected a bounce-back to 50.
A private-sector employment report from Automatic Data Processing reinforced bearish sentiment on Wednesday. It reported only a modest 135,000 jobs created in September. Analysts took it as another sign that hiring is slowing. The average monthly job growth over the past three months fell to 145,000 compared to 214,000 over the same time period in 2018.
A MarketWatch report summed up the last two days on Wall Street.
Already considered an unusually volatile period for the stock market, which has logged historically ugly October declines in 1929, 1987 and 2008, worries about geopolitics and growing signs of domestic and international economic weakness have fueled bearish bets and sent stock-market optimists, at least momentarily, scurrying for cover in assets perceived as safe.”
One of those safe havens was gold. After a significant correction that pushed the yellow metal a two-month low below $1,460 per ounce earlier in the week, gold rebounded as stocks plunged and pushed back above $1,500 per ounce on Wednesday. The rally pushed the yellow metal back above its 50-day moving average.
Silver saw an even bigger jump. It closed at $17.01 on Monday and was up to $17.65 on Wednesday, a 3.8% increase.
With all the turmoil, the Atalanta Fed revised its Q4 GDP projection lower to 1.8%, down from 2.1%.
President Trump has called this the “greatest economy” in the history of America, but it looks more like we’re back where we were during the Great Recession. Peter said the only thing this economy really has going for it is massive deficit spending.
What is driving US GDP is consumers spending borrowed money and the government spending borrowed money. That’s it. That’s the secret. Have a borrowing binge and spend a bunch of money to try to artificially boost GDP while the actual economy — the real economy — is imploding.”
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