The stock market is feeling the pressure of a number of bearish factors weighing on it as we press into the month of September.
The technology sector was under selling pressure through the week, especially the social media stocks as the congressional hearings demanded more information on how their automated systems work to serve up and/or block content on their social networks and how they spot material that needs to be removed.
Investors with positions in FAANG stocks have a reason to worry. Not only is President Trump saying that the social media companies could be subjected to anti-trust regulation, but the tech sector may be subject to regulations of political content and consumer privacy issues that these social media companies have been increasingly abusing.
The tide of public opinion has turned against tech over the last year, and Congress has followed suit. Senate GOP leader Orrin Hatch called Google's anti-trust behavior "disquieting", despite the fact that he used to staunchly defend the sector.
I think there is another issue that is not being talked about with these companies. All of these companies (Facebook, Apple, Amazon, Netflix, and Google) are all greatly influenced by Communist China, as social media companies. The hard turn left towards socialism and communism in our education system and in the Democratic Party over the last several years is undeniable and the influence of social media is now under scrutiny and is likely to be regulated, impacting the tech sector in the future.
"This could be a very serious broadside against the entire Internet industry coordinated by multiple layers of government," said Eric Goldman, co-director of the High Tech Law Institute at Santa Clara University, in Silicon Valley.
Meanwhile, the Department of Justice said it would investigate "growing concern that these companies may be hurting competition and intentionally stifling the free exchange of ideas on their platforms."
Another bearish factor weighing on the market is that President Trump has said he is not ready to make a deal with China, despite ongoing talks between the U.S. and China. The world's two superpowers have slapped $50 billion of tariffs on each other in a tit-for-tat trade war that appears to be just getting started. President Trump is threatening to slap another $200 billion on China and this put pressure on the stock market this past Thursday!
Washington demands that Beijing improve market access and intellectual property protections for U.S. companies, which China has abused, cut industrial subsidies, and slash a $375 billion trade gap. China says this is hardline tactics. We are about to see if President Trump is going to make good on his threat.
While the S&P 500 index has pulled back the last few days with the sharp correction in the tech sector, given its huge exposure to this one sector, the rest of the world has fallen into bear market conditions.
When just a handful of stocks are holding up the S&P 500 and the rest of the world is in a downtrend, investors need to be very careful, especially when the leading sector right now is the utility sector.
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All it takes is another rate hike or two before we slip into recession (in late 2018 or early 2019). Notice what is happening to the auto, housing, and manufacturing industries:
With rates rising the last few months, the U.S. housing market is getting roughed up. There has been a steady stream of negative data showing that the housing market is slowing. As we get close to seeing interest rates invert, bank lending is contracting in the space. The fall off is so strong that banks are laying off workers in lending units.
Both sources of demand for mortgages - refinancing and new home purchases - have dried up as interest rates and housing prices have risen. July showed the fifth straight month of declining home sales, coming in the time of the year when they should be strongest.
As money tightens, real estate loans in bank credit are falling!
We are coming to the end of this economic cycle.
To your wealth,
Dennis SlothowerEditor, Stealth Stocks Daily Alert and Wall Street's Underground Profits
Dennis Slothower has been leading a small but profitable group of investors to some extraordinary profits in both good markets and bad over the course of a 38+ year investment career, starting as a stock broker in 1979. In 2011 Dennis was named the top performer by Hulbert Financial Digest for avoiding the Crash of 2008. Now, he is bringing his extensive experience to the public through Outsider Club, Stealth Stocks Daily Alert, and Wall Street's Underground Profits. For more about Dennis, check out his editor page.