This guest commentary was written by Mike O'Rourke of JonesTrading on April 3.
Stock Market Shenanigans
The stock market is yet to acknowledge it, but market participants are witnessing the negative consequences of Gary Cohn’s departure from the Administration. On some days, trading has been reduced to being on guard for the President’s Twitter tirade against Amazon and the subsequent reports noting that no action is imminent. This is the second time this has happened in as many weeks and the bottom line is it is bad for markets.
Amazon declined more than 5% yesterday because of the President’s criticism of Bezos & company. Today’s initial attempts to rally failed as the President continued his attacks. The late afternoon reports of “no ongoing White House talks about action on Amazon” were timely. The headlines ran just before the final hour of trading as the fading equity market was about to test its morning low. Amazon itself spiked $30 in less than five minutes, and more than $50 over the span of twenty minutes. The S&P 500 rallied 1.5% over the same twenty minute time frame (chart below).
These movements are almost entirely tied to the whim of the White House. The President goes on the offensive in the morning and “sources” (Larry Kudlow?) seek to put out the fires in the afternoon. That is neither a reason nor an environment for investing, it is exactly the opposite. Investors are not making a decision based upon fundamentals or the outlook of a company, they are responding to political propaganda. It is because of this type of geopolitical risk that emerging markets trade at low multiples.
When Cohn’s departure was announced, in terms of trade we described it as follows, but it applies to business overall:
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“Financial markets should recognize the future ramifications of Cohn’s departure. It is one thing to simply lose the battle on this single policy measure, it is another to surrender the war. Had Cohn stayed, he would have been viewed as the counterbalance to temper future protectionist measures. Now there is nobody." |
Cohn was the member of the Administration whom the President respected for his business and market acumen. He would have warned the President that these stock market shenanigans lead to a slippery slope that you don’t want to go near. Just to highlight how absurd this is, does anyone realistically believe the President has launched his last Twitter offensive against Jeff Bezos and Amazon?
EDITOR'S NOTE
This is a Hedgeye Guest Contributor research note written by Michael O'Rourke, Chief Market Strategist of JonesTrading, where he advises institutional investors on market developments. He publishes "The Closing Print" on a daily basis in which his primary focus is identifying short term catalysts that drive daily trading activity while addressing how they fit into the “big picture.” This piece does not necessarily reflect the opinion of Hedgeye.
