Turkish Crisis Causes A Modest Decline In U.S. Stocks

Stocks Fall As Expected

The stock market fell as expected. Personally, I had been bearish on stocks in the near term because they were overbought according to the CNN Fear and Greed index. The S&P 500 fell 0.71% and the Nasdaq fell 0.67%. The VIX increased 16.77% to 13.16. If I was a bull, I would want this volatility because if stocks go up in a parabolic move, a sharp correction like we had in January will occur. If I was a bear waiting to pounce, I would have hoped for the market to accelerate after hitting a new record so I could get heavily short.

The CNN Fear and Greed index fell from 70 to 60 which still signals greed. Therefore, I have become neutral on stocks in the near term. The fear of a double top could turn into a self-fulfilling prophesy if stocks fall over 5%, but I don’t see that happening since earnings have been great. The only real sign of weakness in the economy is from the housing market.

Materials were the worst performing sector as they fell 1.43%. The best sector was energy as it was the only one in the green. It increased 0.43% because oil was up 1.2% to $67.63. Even with this increase, oil was still down on the week. This was the 6th straight week of declines which is the worst losing streak in 3 years. Oil is down because the dollar is up and global growth outlooks are dimming because of a potential trade war.

A Turkish Catalyst

The excuse for the decline was the 14% decline in the Turkish lira. Personally, I think this is an excuse to sell off because Turkey is a very small economy. It makes up less than 1% of the Vanguard Emerging Markets ETF which is why even with this massive decline, the Vanguard index was only down 1.99%. Make no mistake about it, the decline in the lira was massive. I just don’t think it is relevant enough to cause any weakness in the American economy. The Turkish lira has been weakening for years. The Turkish lira has been declining because of geopolitical worries, worries about its ability to collect taxes, and the fact that the government will soon run out of land to sell to the private markets. Recently, the lira has been falling because the central bank refuses to raise rates enough to support the currency.