China's yuan devaluation has investors 'puking stocks'

Brian Sozzi
Editor-at-Large

Many bulled up investors are likely to fill up the toilet bowl in the early going this week.

And they can thank their own insane appetite for risk for that unwelcome, possibly extended exercise around the good ole’ porcelain throne. “It’s going to be a throwing up of stocks,” said BNY Mellon chief strategist Alicia Levine on Yahoo Finance’s The First Trade, when asked for her take on Monday’s vicious market downdraft. “It’s a technical term — people are puking stocks. I don’t think this is the fundamental selloff or the big one that people have been looking for — this is responding to news, taking some risk off the table because you have to factor in the risk these tariffs do happen.”

It’s difficult right now to see the positive catalyst this week that could stop the puking Levine describes.

President Donald Trump said Friday via Twitter that he would slap a 10% tariff on $300 billion in Chinese goods starting September 1.

China on Monday surprised global markets by letting the yuan weaken past seven per U.S. dollar (USDCNY=X) for the first time in more than a decade, in an apparent retaliation amid an escalating trade war with the U.S.

Trump then doubled down on his tough stance on China Monday, labeling China a “currency manipulator” via a tweet. That name tag has been assigned to China since the Clinton presidency in 1994.

Investors are fleeing risk

The Dow Jones Industrial Average (^DJI) opened down about 400 points Monday. But the benchmark index quickly shed more than 740 points by early afternoon, evidence as to how unprepared investors are currently for a renewed heightened risk backdrop. Keep in mind that stocks were mostly on fire in July on excitement around a new rate-cutting cycle by the Federal Reserve. Earnings season has also gone somewhat with household companies such as Apple (AAPL) and Alphabet (GOOGGOOGL) beating easily on second quarter earnings.

All bets are likely off now, as investors flee the higher than average risk ideas their money managers stuck them in because of the appearance of cooling trade tensions and lower rates.

“For the market, it’s like July never existed,” said JJ Kinahan, chief markets strategist at TD Ameritrade.

If there is any consolation, a friendlier Fed and a healthy Corporate America (for the time being...) likely means a return to the December 2018 bear market lows is unlikely.

“We won’t re-test the December lows,” said Mike Piershale, president of Piershale Financial Group.

Comforting, kinda.

Brian Sozzi is an editor-at-large and co-host of The First Trade at Yahoo Finance. Follow him on Twitter @BrianSozzi

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