Will Mid-March Madness Maul the Stock Market in 2017?
Will Mid-March Madness Maul the Stock Market in 2017? by David Haggith
Many of the 2017 economic headwinds I’ve described will hit during the Ides of March, just as the Trump stock-market Rally shows signs of topping out. This might not be the Great Epocalypse — not all at once anyway — but a large and likely correction is looming. I think the bear is about to be let out of his cage.
Chaos emerged in emerging-market stocks last week, bond prices plummeted (yields rose to match their last 2016 high), stock-market volatility rose, and the Dow took its worst drop in 2017. Copper prices, a bellwether for recessionary conditions, saw their worst week since last September. It looked like the Trump rally in almost everything was rolling over last week, and that takes us into this week when several likely big bads are scheduled to hit on the same day.
Debt ceiling bomb about to drop
One of the biggest hits happens right on March 15th when the statutory limit to the rise in US national debt arrives. David Stockman has been speaking a lot lately about how March 15th changes everything for congress. Republicans have been loathe for years toward raising the debt ceiling, taking the government near default by using the ceiling and the “full faith and credit of the US government” as a budgetary bargaining chip.
Such a battle over the debt ceiling in 2011 caused a major stock-market plunge when Standard & Poors downgraded US credit for the first time in history because congress chose to walk too close to the precipice. Just prior to that credit debacle, I predicted the downgrade would happen even though I said congress would vote to raise the debt ceiling at the last minute of the last hour.
I said that would happened because Republicans knew they would not let the nation default, even as they pretended for negotiation reasons that they might. There error would be in thinking that their last-minute capitulation would save the US credit rating. I said that belief would prove to be highly misguided because no one else knew what Republicans would do. I said that such brinksmanship over something so important would certainly cause some credit-rating agency to believe that congress was becoming overly risky.
I predicted the downgrade would happen in late July/August, even if Republicans raised the debt ceiling, and the stock market would crash immediately. Four days after Republicans raised the debt ceiling, the US credit downgrade happened, and the stock market plunged. An all-out crash was only averted at the end of September when the Federal Reserve started its new stimulus brain child that Ben Burn-the-Banky called “Operation Twist,” sending the market’s vital signs back on an upward path with breathless hopes of more quantitative wheezing.
Democrats are now embroiled over Republican efforts to disembowel Obamacare, which is moving toward a congressional vote just as the debt ceiling hits; so this time Democrats may be the ones to use the ceiling as a bargaining chip. I think they will be less likely to take things to the edge of the cliff than Republicans did, if only because everyone has seen what can happen when you play roulette like that; but they will use it to some extent, and they are likely to find Republicans who are reluctant to raise the ceiling, too. So, that battle begins in ernest this week, putting all of Trump’s stimulus plans in peril, which puts all recent stock speculation at obvious risk since the Trump Rally was largely based on belief that Trump would amp up spending and hugely cut taxes — actions that would make the debt-ceiling problems much worse.