As News Deteriorates, Markets are Heading over the Cliff

Various pundits say the U.S. budget and debt limit crisis could affect the markets and possibly unravel the fragile economic recovery that apparently is on its way.  If Monday's preliminary collective mood charts are even close to the final version we will publish in about 18 hours, there could definitely be a problem. 

Our preliminary charts for Monday show a plunge in the mood reflected by the news.  They also show social mood dipping below support.  Does this mean a sharp market drop is at hand?  On Friday, in our after market notes, we shared this: "If both the mood and the news go south over the weekend, that could spell big trouble next week."

Hmmm...

Below are the preliminary charts for Monday.  They show a 1-2% drop is possible on Monday.  The news chart is pretty ominous looking, but the top one, the social mood chart is actually hopeful, as it is bad but not terrible.  As that will be behind the decisions made, and it hasn't solidly broken down, markets may hang in there and not drop precipitously.  Perhaps there is even a chance for a last minute deal.  Stay tuned for the final chart early Monday morning.

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At the Edge of a Cliff: Outlook 20 Sept '13

after market update: actual S&P -12.6 (-0.7%); Markets opened nearly unchanged, up about 0.2%.  Following this, they slowly declined the rest of the day.  The House passed a stopgap funding bill, tied to defunding Obamacare.  Does this give us the title for the next "chapter"-- the U.S. funding/debt crisis?  Does today mark the first step off the cliff?


news ties markets and this next chapter together: Dow down nearly 200 points as uncertainty returns
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Overview:  The mood portrays a perception of an "ending of a chapter."  This together with the sharp drop in social mood showing up over the last few days, indicates that the new reality showing up next week may be quite surprising and disturbing.

Today's Market Outlook is Nearly Unchanged (-0.1% to +0.3%).  A sharp stock market drop is likely to begin within a few days.  Social mood is sharply down over the past several days, and the markets should be joining the trend by early next week.  At the time of this posting, the social mood signal is slightly positive, and the news signal is barely negative.

 

Near term outlook: The social mood pattern corresponds with perceptions that a national or global "chapter" is ending, and a new one very near beginning.  Common news themes associated with the current news mood pattern are uncertainty, confusion, and over-indulgence.  The combined pattern, at times, accompanies global themes of violence, instability, terrorist activity, and geopolitical escalation.  Diplomatic endeavors or negotiations are not likely to succeed at this time, as a mood of genuine cooperation is almost non-existent.

 

Longer term outlook: The social mood trend has turned sharply down; the bounce over the last month appears to be complete. 

 

Today’s social mood signal is +4.9 S&P points.  Markets tend to follow social mood more often than not.

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Today’s news signal is -0.5 S&P points.  News tends to follow the general trend of the market, but on a daily basis, can either lead or lag the movement of the market.    
 

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