Bad News, Bulls: The Rally Might Be Over

Deutsche Bank CEO Christian Sewing

Stocks are plunging this morning, led lower by the Dow. The S&P and Nasdaq Composite are dropping, too, but have performed slightly better by comparison.

Overall, though, this trading session’s been a complete rout, threatening the sanctity of the bull market. Several technical levels of support have been broken this morning as well, including the 50-SMA.

Look out below.

Without a doubt, the biggest bearish influences of the day came from the U.K. and Washington. The British government is considering imposing another lockdown to stop a Covid-19 resurgence. Meanwhile, the passing of Supreme Court Justice Ruth Bader Ginsburg weighs heavily on investors as politicians squabble over her replacement.

President Trump said he would nominate someone later this week to take Ginsburg’s seat. Democrats fired back, saying that they’ll fight tooth-and-nail if he does. House Speaker Nancy Pelosi suggested that another impeachment isn’t out of the question.

As a result, hopes for a stimulus deal are at an all-time low.

Cowen political strategist Chris Kreuger explained in a note that a deal is “unlikely until post-Nov. 3 as the fight over Justice Ginsburg’s empty seat will consume D.C.” If that estimate proves accurate, investors will have little to look forward to over the next month and a half.

Worse yet, if a broader sell-off is coming, bulls won’t have many places to hide. It seems the “will they, won’t they” tech-to-financials rotation is officially off after several weeks of indecision from traders.

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And it’s all because of a new report that claims there’s criminal activity underway at a number of global banks. The International Consortium of Investigative Journalists and BuzzFeed may have discovered a large-scale “blind spot” in the banking industry when investigators found over $2 trillion in flagged transactions. The transactions occurred between 1999-2017, and the banks’ internal compliance officers flagged them for potential money laundering or other criminal activity.

Investigators say that Deutsche Bank (NYSE: DB) alone facilitated $1.3 trillion of those transactions. DB shares are down over 9% as of noon.

The rest of the banking industry is hurting as well, albeit not as badly. JPMorgan Chase (NYSE: JPM), for example, has only fallen 3.9%.

In response, banks are claiming that none of this is new information, as it had been filed with regulators in the past.

JPMorgan says it routinely reports suspicious activity to the government “so that law enforcement can combat financial crime, and have thousands of people and hundreds of millions of dollars dedicated to this important work.”

In a statement to CNBC, the bank added:

“We have played a leadership role in anti-money laundering reform that will modernize how the government and law enforcement combat money laundering, terrorism financing and other financial crimes.”

If it’s true that some tomfoolery is afoot, expect bank shares to get crushed even further, possibly wiping out any “safe haven” for bulls jumping ship from post-crash winners.

In reality, the safest place to wait out the selling could actually be the tech sector, which ironically created many of the market’s major imbalances in the first place. Over the next week, a short-term bounce is likely.

And the biggest short-term gains should be reflected in Big Tech.

But longer-term, the rally is likely finished without a stimulus deal. And with a contentious presidential election in the near future, investors will be given plenty of reasons to sell.

Regardless of whether or not Covid-19 mounts a fall/winter comeback.

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