The Trading Floor: Breaking Down the Latest Sell-Off in Markets

Hello and welcome back to the show. We are recording this on Wednesday the 12th of March, so a little bit earlier in the week because we're only 3 days in and already there's been a lot of action in global markets, namely big sell-off that accelerated on Monday. The major averages tumbling to their worst day this year. The tech-heavy Nasdaq fell nearly 4%, its worst day since October 2022. Tesla down 15%, worst day in 5 years. Hedge funds are unwinding positions. HSBC is downgrading US stocks. It's all kicked off, uh, since we last spoke, Piers, as you can tell. However, the other main thing just came out today, and that was US consumer prices, CPI, rose at its slowest pace in 4 months in February. So is that a bit of a counterbalance to some of the things we've been seeing? And of course, We can't go an episode without talking about Donald and tariffs, and that has just ratcheted up a few notches again. And so good to get your latest thoughts, Piers, on that. But yeah, Monday's sell-off, perhaps we can start with deconstructing the triggers of what, why that happened.

Yep. So it's just more of the same. Like last week, we were talking about 3 down weeks in a row and We mentioned the 20,000 level on the NASDAQ, and it just, you know, if that got broken, then, you know, that would lead to further downside. So that got broken in style on Monday's session. Broke 20,000, and by the end of Monday's session, we wound up down at 19,200. Big, big move. The biggest move of this, what is now extending into a 4-week sell-off. So what happened? Well, look, it's more tariff stuff, um, plus, um, something else I wanted to slide in there and talk about. But on the tariff stuff, this is obvious, everyone knows all this stuff, you can't, can't avoid this news. But just as a super quick update, so here we are, this is where we're at so far on tariffs. So we've got 25% tariffs on all Mexican imports and most Canadian ones. It's just energy products from Canada where they've got a 10% tariff rather than the 25%, just because the US loves Canadian oil. Um, they've now doubled the tariffs on China, so China tariffs are now up to 20%. Um, in the last week slapped a 25% tariff on all steel and aluminum, um, imports into the US, um, which the EU retaliated against. Um, actually that got announced this morning Right, that's happened. What's going to happen? What's currently the threat still on the table? Well, he's talking about reciprocal level of tariffs for all foreign nations to come into effect at the start of April. So that just means any country anywhere, if you've got a tariff on a US product, we will equal that tariff if you're importing the same kind of products into us. Okay. And then finally, he's threatening to double those 25% tariffs on steel and aluminium just for Canada. Right? So they're the threats that are still on the table. Okay. Now, so this triggered more moves to the downside. We've spoken about the other stuff around economic data. Actually, just touching on that, the non-farm payrolls data end of last week wasn't— I mean, it was slightly worse than expected, but actually could have been worse. So that kind of avoided that banana skin. But look, we've got tariff risk. Now, let's step back. At the start of this year, we knew tariffs were coming. And the idea in investors' minds was, well, what happened last time when Trump was in town? And actually, the idea was Trump would be very reactionary to how markets behave in response to his policy strategy. To put more simply, we thought that, look, if markets dropped sharply because of this tariff stuff, that would see Trump start to row back a bit. And not be quite as aggressive with his demands, right? This is what we call the Trump put. There's an old famous saying called the Fed put, or the Bernanke put, I should say, or whoever's in charge of the Fed. This idea of a put is a safety net for markets, a policy safety net, so that if markets fall, that's not a good look. So let's do something to boost them back up, right? So a Trump put was, well, if markets fall, Trump will rein in his demands on the tariff side and markets will go back up. Right? That's the thought at the start of this year. What's becoming clearer and clearer as we go through these weeks is there is no Trump put. This is Trump 2.0. He's different. And what actually spooked markets quite a lot and triggered a lot of that big downside on Monday was actually some comments from Bessant. That's his Treasury Secretary. And comments from Trump over the weekend. We're going to quote here, okay? And then we'll get on to Monday's sell-off and dive into it. But Bessant, first of all, he said, could we be seeing that this economy that we inherited starting to roll over a bit? Sure. He said, over the medium term, which is where we're focused, it's a focus on Main Street, not Wall Street. Wall Street's done great. I'm still quoting directly here. Wall Street can continue to do fine, but we have a focus on small business and consumers. So we're going to rebalance the economy. What did Trump say? Direct quote, I'm not even looking at markets. Right? So this is then Wall Street have gone, ah, all right. We were hoping for some support and markets would rebound because Trump would rein it in. But actually, that's not going to happen. Okay, this is a fundamental difference from Trump 1.0 from the first time around. So markets just puked and like big time. Monday was one of those really big days. It was like, wow, okay, this is impressive in terms of the speed of some of this decline. Tesla at the absolute forefront of that dropped 15.4%, which is continuing huge slide they've already had. They're down over 50% now since mid-December, right? But look, other— so big tech got hit the hardest. Companies like stuff you might not have heard of, Microchip Technology down 10.6%, Palantir down 10%. All right. What was interesting amongst the big tech, even Apple got absolutely slammed. Apple was down 5% on Monday. Now, the thing that's surprising about that is Apple's almost morphed into a bit of a safe haven stock amongst, certainly amongst the kind of tech community, right? So the fact that that got hit was interesting. But look, it wasn't just big tech. Banks, bank share prices got hammered. Now, that's quite interesting. That's really showing you that investors are concerned about straight up economic concern here because banks perform well when the economy is performing. And look, the idea, and I think you'll give me a quote from Solomon from Goldman's, but we started this year thinking M&A deal flow will be massively on the up. Banks are going to be generating huge revenues from this. And that, that drove a massive bank share price rally into the end of last year. Well, now it's like, ooh, if the economy turns over here, maybe that's going to kill this sort of M&A revival before it's even started. So banks' share prices got hammered. Where's all the money going? Defensives. So you've got your healthcare, your consumer staple stocks. So companies that did really well on Monday Philip Morris, Coca-Cola, Procter Gamble, Costco, you know, these lot, right? That's where the money's getting channeled into. And so it was a proper, straight up, large risk-off session. Um, and this is continuing the themes, right, of the last few weeks. And these new themes are international equities outperforming US equities. Low volatility stocks outperforming high volatility, the average S&P 500 stock outperforming the Magnificent Seven, and then as I said, consumer staples outperforming consumer discretionary, right? These new themes, they've been going for weeks. Monday was just another acceleration of all of that.

So you've got the fundamental reasons that you mentioned on the macro perspective. You then got the technical side of things. So you spoke about, uh, the 200 daily moving average in the NASDAQ. I know that the S&P is not quite there yet. And also there's something which I hope you could explain in more simple terms, but the S&P 500, the major kind of bellwether stock index in the US, the 14-day relative strength index RSI is just below 30. So, so why is that meaningful?

So it's interesting when it comes to technical analysis and the mainstream financial media, they virtually never cover it, hardly ever, ever. When, when you get this thing called the 200-day moving average being broken, certainly on the downside, this is one of those moments where you always get— I mean, I even saw a headline in the FT 'Nasdaq 100 breaks 200-day moving average.' That was the headline. It's like, wow, okay. So that, that's just a very long-term— like, a moving average, very simply, is a trend kind of, uh, it's a technical tool to measure trends, direction of trends, health of trends, and particularly trend reversals. And when this— and the king of all of these— and there's loads of 200-day moving— sorry, there's loads of moving averages in terms of time periods you can change up, as well as exponentials and all the rest of it, but just the straight-up simple 200-day moving average is like the king of all of them. And it's called the death cross, right? So when the market breaks below its 200-day moving average, that is a technical signal that says the uptrend's done, it's over, we should now expect a reversal. The thing is, it's like a self-fulfilling prophecy, right? If people see that getting broken, well, then they sell. Which of course just accelerates that downside. And we call this a technical breakout. And look, these days there's a lot of algo, a lot of hedge funds run trend following algos, and they are literally programmed to sell when the moving average gets broken, right? So that's why the big blowout on Monday was so huge on the NASDAQ, because you had some of these technical strategies triggering kind of liquidations, right? Now, a different, um, a different tool entirely, a different technical tool entirely, is RSI, Relative Strength Index. This is trying to measure when a market's overbought or oversold. Okay, now when it's on the— so the RSI's value is 0 to 100. When it breaks below 30, that's an extreme price scenario where the market's gone down a huge amount very quickly. So this is measuring quantity— oh, sorry, size and speed of move. And when it goes below 30, that flashes and says, hang on a sec, this is potentially oversold, meaning this sell-off, this sell-off's overdone. You got to be really, really careful with the RSI though, because if you're in a powerful sort of short-term high momentum down move it's not necessarily when it breaks below 30 you say, hang on a minute, that's the bottom, start buying. You've actually really, with that RSI, it could go to 20, it could go below 20, right? The trick is to wait for the RSI to reverse. The RSI is a lead indicator, so we wait for that to reverse back up. Then that's like, okay, maybe the sell-off's done here. This is the bottom. Perhaps we can be more confident about buying at these levels. So That hasn't happened yet. That RSI is still dropping, right? Well, I don't know. We'll see. We'll talk about the CPI data drop in a minute and what's happened. But yeah, from a technical perspective, certainly on that moving average one, that's just adding to the kind of selling bias.

On a day like— well, just explaining what you have in regards to really there's nothing too new here that we didn't know about. It's kind of a capitulation of all these different things. And then you hear of hedge funds, you hear the flow side of things, and hedge funds are unwinding their positions even more aggressively than they have done in, in several years. Does that then, without the, uh, input of a new brand new fundamental reason, yeah, you get these exacerbated type moves. Would that in a sense give you confidence that actually, yeah, the market probably overdone it? Because, you know, I'm talking from a perspective— you used to be a day trader.

Yeah.

So on a day like that, is it just everything crystallizes in a moment and you get a 4% down day, which is a multi-year sizable move? So it's an anomaly from a statistical perspective on a daily volatility. But given that you've said that there is no actual new fundamentals— okay, the tariff things evolved a bit, but Yep, it's already there.

It's so behavioral. Yeah, you know, it's— and when you've been watching markets for as long as I have, you can, you can see this behavior and you can actually see the signs of it, you know, earlier on. I mean, we were talking on the podcast last week. I mean, when did we record that? On Friday morning, wasn't it? And I was like, well, let's see, you know, the NASDAQ's going to break 20,000. You know, this thing's not done. This is going down. You know, why was I so confident about that. It's just because I've seen this so many times, and I felt that this market's not ready to stop going down yet. Then you get these really exacerbated extensions, overextensions, right? Which is basically what happened on Monday. Now, that could be a temporary overextension. I'm not saying this downtrend's done, but, you know, we have bounced a little bit here. we'll talk about CPI in a minute— but when you see Tesla down 15% in one day, that's like, well, hang on a second. That fundamentals on their own cannot justify a move of that scale in such a short space of time. And so you're going to get what's called a slight mean reversion following that. So in the short term. Right, so buying Tesla after it dropped 15.4% is a high-risk, dangerous play because you're stepping in the way of a high momentum move to the downside. But, you know, it's like a— yeah, such an extreme that naturally you'll most likely see a mean reversion in the short term from that. It doesn't mean Tesla stopped going down, but you get these kind of wave patterns. In price movement. But behavior— step outside of Tesla— behavior, when you get these trend lines and these technicals getting broken, it just adds to— yeah, people are sat on the sidelines going, well, hang on, I'm long. I was hoping for Trump to come in and say, all right, we'll reverse some of these tariff threats, you know, because that's what he did last. I've been hoping for that, hoping for that. Hang on, this is, this is getting more painful. More pain. Should I sell? Not sure, should I stick in there and hold out, should I sell? And then you see a technical signal which is highly negative, and it could be something like that that just triggers you. Okay, damn it, I'm out, I'm out, just let's just get out. And of course, the faster it moves down, the more it triggers that behavior to hang on, I've got to get out as well. And you kind of get that stampede for the exit scenario, which is what winds up in those big behavioral moves and weighs to the downside, which was classic and was exactly what happened on Monday.

So let's talk about the CPI then, because this, it could have got worse very quickly with an additional kind of firework. However, this has come in somewhat contradictory to that, where CPI rose at its slowest pace in, in 4 months in Feb. So I do have some notes about some of the breakdown, but perhaps you could, I know this is your specialty.

Just on the headlines before we delve in. The most notable, so look, this is a really good inflation report. All right. Inflation's dropped. Let's just put it there, right? Last month was the opposite. It was a really bad inflation report. Inflation went up and it was higher than expected. Okay. Finally, we've got a good inflation report here indicating softness. What I think the most standout number of all of them is the, what's called the core CPI year on year. That is looking at core inflation. So that's all the price of goods, not including food and energy, which is highly volatile. So your eggs are coming out of the basket. Eggs were up, they're still 54% up on the year or something crazy. And it's take eggs out, right? And so actually what you're left with is an annual reading of 3.1%, right? So core inflation, 3.1% for February compared to February 2024. That is the lowest core inflation reading since April 2021. So you've got a near 4-year low on core CPI. All right, now look, it's only 0.1% below what was expected and it's only 0.1% below the levels that we saw in December and indeed last summer. But still, it's a 4-year low, right? So that's obviously a good thing.

Can I just add the supercore? The supercore services gauge, just to peel another layer off. So that looks at services prices stripping out housing.

Okay. Yeah.

So in this report, that was up 0.22% in February from January. The previous one was 0.76%.

Right. Yeah. So this is a really good report. Finally, and we needed it because as you've said, wow, if this, if this inflation data had come out higher than expected again, I mean, this downside was just going to keep on going. Right. So, so really the big question is. Is this good enough to halt this, what is now a 3.5-week selloff? That's your million-dollar question.

So can I just say that perhaps not. And the reason not is that this is just backward-looking.

Yeah.

And that Trump doing what he's just done, like literally in these days, and also the threat of not wanting to call his bluff in him doubling down as he has already threatened with like Canada, like you said, is this not just the difference between retrospective information? It was actually, it's good. If anything, might he go, actually, that's good. I can now even press on then. So I'm right to press on because yes, this might stoke inflation, but if it's already falling, Well, then that gives me even more room to pursue my strategy. I know you've got a bit of an idea about the underlying strategy here.

I do. Well, look, first of all, as you said, it's backwards looking. The point about this inflation report, it includes no tariff impacts at all. This is February inflation. Tariffs are just coming in now. Tariffs going up is inflationary. So even though you're looking at February going, phew, all right, at least it's come off a bit, traders are looking forwards and they're thinking still that in Trump's current mood, inevitably we're going to see inflation going back up because of these tariff impacts. So yes, I think that this is— this has created a little bounce. Like, the NASDAQ's up 1%. All right. It's sold off, I think it was 14%, right, in the last 3 and a half weeks. It's up 1%. So I think that this can create a pause in the sell-off. But as you quite rightly say, ultimately, the big reasons for this sell-off are very much still present. Now, back to the point. And the reason for Monday, remember, was this realization that the Trump put is off. So the administration's focus is Main Street, not Wall Street. Now, I've got a little theory. It's not mine. I was really doing some reading. And actually, well, I've read lots of people's reasons, you know, why is Trump behaving like this? One of them I really liked. Did you know that in 2025, the US happened to have a huge amount of their debt is hitting maturity, and they're going to have redemption payments, and they've got to roll over this debt. To put it more simply, there's $9.54 trillion of US government bonds, loans that are hitting, that are maturing this year. So therefore, the US government are going to have to reborrow that money. That's rolling it on. So they will issue an issue more bonds and borrow $9.4, $9.5 trillion to pay back those loans that are now maturing. That's 33% of their entire debt is due this year. So they're going to have to reborrow. The problem? Yields are way higher than when they borrowed this money originally, which was when yields were down at between 1% and 2%, if you think about the US 10-year yield. Right? They're going to have to refinance at a much higher interest cost. So is there a strategy here where Trump and his administration are straight up, they got two focuses? Why did they win the election? They think it's because Biden and his team did not resonate. Their message didn't resonate with the mainstream, with people out there running business. And what was the key there? It was inflation, was the cost of living that was killing them, right? So Trump and his team, they're focusing on inflate. Can we get inflation down? And actually, that will help because that was our mandate and that's what people want. But also, if we can engineer inflation down, this will see yields dropping. And can't we engineer this where we can refinance $9.5 trillion at a lower interest cost? Okay. Even if they managed to drop 10-year yields by 1%, That would save them $90 billion on interest payments, right? Just a 1% difference. So is that their strategy? And it seems to be working. If you look at this inflation print we just had, as in it's coming down. And if you look at the 10-year yield, you know, it's had a phenomenal move to the downside this year. If you take the mid-January high, it was 4.8%. 10-year yields, they hit 4.2% last week. Huge move to the downside, right? So is this, is this their play? I will add something else. If the asset prices reducing, put another way, stock market selling off, will also be deflationary because people, if stocks are going up, they're feeling, well, hey, I'm rich. Check out my Tesla position. You know, people feel caught, they spend more. If asset prices are on the up, consumer demand typically rises. That's inflationary. So get asset prices coming down. Look, a bit of heat coming out of the economy. These are all deflationary factors, right, which can lead to yields dropping. And can we borrow this huge wedge of cash at a much cheaper rate? Final point, oil. Have you been checking the price of oil? It hit a 3-year low. This week. No one's talking about that. Why? Okay, well, OPEC+ have finally pledged to lift the production cap in April, so we might get more supply coming out of OPEC+, although Russia have maybe thrown a bit of spec— a bit of water on that idea. But then also, you know, the US want to pump more, right? And obviously, bad news from a demand point of view if The US economy might weaken. Obviously, this all feeds into negativity for the oil price. So yeah, WTI crude broke $67. That's the lowest since November 2021. So that's deflationary as well.

And also, the optics of that, I remember when, what was it, $4 mark? Well, the psychological level breached, which really killed Biden at the end of his term.

Oh, that's the cost at the petrol pump.

Yeah.

Yeah. $4 a gallon.

So if it was, if you're getting the reverse of this, and you can warm relations with Russia to even, yeah. So yeah, it's very interesting. I mean, wow, what a chessboard they're playing with though, in terms of the stakes here. I guess my question, as you were explaining that, would come to mind is, when are these redemptions? Like, are they clustered and at what point of the year so that then I can buy the bottom of this, uh, route in the market?

So I was trying to find that info out. Um, I, I asked my analyst, ChatGPT, um, and they— and my reliable analyst said, yeah, sorry, that data in terms of the vesting schedule— not vesting, the redemption schedule— is not available. It's not publicly available. So I didn't delve deeper. I mean, it's obviously got to be information that's somewhere, but I couldn't, in a short space of time at least, I couldn't find the details on that. So it's $9.5 trillion over the next 12 months is basically as good as I've got.

All right. Well, yeah, anyone listening who does know that schedule, please do let us know. Be super interested. Pique my interest now. I'd like to know when that's happening. But yeah, I mean, otherwise, look, let's wrap it up. Any closing thoughts though for the listeners out there?

Yeah, I mean, I'd say then, look, markets are on the up today. I think what happens by the close, right? Do markets finish up? I think will be a fantastically important sort of line in the sand. If they finish up, I think this is enough. This inflation data is enough to just pause on this sell-off. I'm not saying it's the end of the sell-off. Then we wait, right? What's the next piece of information? Well, we've got the Fed meeting next week, for example. What's going to happen with tariffs and all the rest of it, right? If the market fails to finish up today, having been served up some positive inflation data. If even that can't lift this market, then we really are in a bear mood. And look, this downtrend is going to continue into the end of the week.

It's fine. The Powell put is 7 days, 3 hours, and 49 minutes away.

Not that you're looking at that timing very closely.

All right. Come on, Powell.

Thank you very much.

Yeah, I mean, it's funny as well though, because playing into your theory, he's completely stopped putting any pressure on Powell. No comment about the Fed.

Well, let's see. Let's see what he does next week. If Powell comes out and goes, look, we're not cutting. We're not in any rush to cut, which is probably what he'll say. Trump will probably fire off a couple of tweets.

Yeah. All right, cool. Good stuff. Thanks everyone. I hope you've had a a good week and have a great weekend ahead. All the best.

Catch you later.