Donald Trump surprised the markets and investors last week when he announced decisions to continue to aggressively battle China and seek significant gains in a trade agreement as his reelection year approaches quickly. Most investors believed that Trump was more concerned about the short-term gains for the economy than the long-term potential that would be derived from a trade agreement. As a result investors likely believed that Trump would back off the aggressive tone he had taken previously toward the Chinese and either sign a compromised agreement or allow this opportunity to pass. This obviously did not happen.
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US equity markets rebounded at an amazing pace in the first quarter of 2019. Historically it has almost been unheard of for equity market corrections of 15% or more to be retraced at the same or better pace than what occurred during the fall. This is exactly what occurred in the first quarter of this year. This obviously has us thinking deeply about what was behind the selloff that occurred in the fourth quarter and whether it was in fact a manufactured correction by hedge funds seeking to make enormous amounts of money through a big short. We hypothesized in January of this year that the selloff in the fourth quarter was likely due to a big short put on by hedge funds and institutional investors and not likely due to fears from investors worried about a substantial change in the economic environment. This seems to be what primarily occurred. Now in hindsight there are some other observations that can be made and clearly more data is available about the economic conditions that were the headline news driving markets lower in Q4. Read more
