The End Is Nigh

Stocks went down instead of up.
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The fundamental reality of the human condition is finitude. Everything, no matter how beautiful and sacred and profitable, comes to an end. The same holds for market rallies. We've gone 110 days since the S&P 500 dropped more than 1 percent in a day. The last time markets kept so quiet was 1995. Alas:

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In other words, as our colleagues in the financial press were keen to note, it's time to freak out:

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It's not for us to say why, exactly, stocks didn't go up Tuesday – there but for the grace of God etc etc. But as Barclays tells us, per CNBC, we should pin broader movements in equities on investors' faith in the Trump administration's ability to overcome historic inexperience, congressional intransigence, and multiple federal investigations in order to pass fiscal policies beneficial to the market. Here's the view from the City of London:

"In our view, a tax plan is unlikely to be passed in 2017, but there will a proposal for markets to price. Through the course of 2017, we expect that the S&P 500 will trade with an embedded 'fiscal option' with the value of that option dependent on the size of the plan and the market assessed probabilities," strategist Keith Parker wrote in a note to clients Tuesday.

At one point the Trump administration would have agreed. Recall Treasury Secretary Steve Mnuchin last month:

In a CNBC interview Thursday morning, the Treasury secretary was asked if the stock market was a “report card” for the Trump administration one month into the presidency. “Absolutely,” Mnuchin replied. “This is a mark-to-market business and you see what the market thinks.”

But things have changed. Asked by CNBC's Eamon Javers Tuesday if Trump believed that today's market dip was the result of his performance as POTUS, White House spokesman Sean Spicer took a different tack:

I think to look at any one day is nothing that we've ever – we've always cautioned. I think overall it still continues to be up tremendously … you can't look at one indices and say that that is the benchmark of an entire economy.

That's fair. Although it might be relevant that the big market drop (one whole percent!) came a day after the world learned that America's chief executive was, uh, under investigation by America's compliance department. That's never good news!

Needless to say, if you're pants aren't thoroughly soiled by now, you're doing it wrong. After all, more than 80 percent of fund managers surveyed by Bank of America Merrill Lynch say that U.S. equities are overvalued, a record in the history of the measure. That's a big number.

Bank of America Merrill Lynch

Bank of America Merrill Lynch

In sum, this is the end of the Trump rally, it's the death knell of the reflation trade and it might even be the first stages of a – gasp – correction. Or it could be time to buy the dip. In which case, check in with Spicer and friends tomorrow at the usual time.

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