U.S. Stocks Drop as Market’s Momentum Fades

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HOW WE GOT HERE

U.S. stocks fell on Wednesday, as the market is not getting any lift from the usual end-of-year burst of buying. While the losses must be taken with a grain of salt given extremely low volumes on the exchanges, there is a growing sense that the market may have worn itself out.

Nobody’s going to be very worried about any of these modest losses right now, or even next week, when presumably “everybody else” gets back from an extended holiday break. But whether or not the Dow does finally at some point cross the 20000 level – it came with 20 points on Wednesday morning before the selling hit – traders and investors might want to take a deeper look at the economic dynamics.

“The one thing that Trump cannot do is make the population younger, and the one thing he will do is make America go deeper into debt, while at the same time pressuring the Fed to raise rates,” Gluskin Sheff economist David Rosenberg wrote in a note on Wednesday. “Aging demographics and a burdensome debt load have been the pervasive constraints on growth and will stay that way for some time to come.”

The bet since election day has been that with the GOP in control of both the White House and Congress, corporate America will have its traditional ally. Mr. Rosenberg’s point is that pro-growth policies will not be able to alter those wider economic trends. “Stimulating growth via fiscal policy at today’s ratio of debt-to-income will fall on its face no different than it has in Japan.” That may not factor into the market today, or next month, or next quarter, and Dow 20000 may yet be duly celebrated. But these dynamics are not just going to go away.

“Excessive debt burdens are still a pervasive constraint on growth,” he said. “And this is where Donald Trump’s fiscal plan is going to go awry.”

COMING UP

Data Front: International Trade in Goods (8:30 AM ET), Jobless Claims (8:30 AM ET), EIA Natural Gas Report (10:30 AM ET), EIA Petroleum Status Report (11:00 AM ET), Farm Prices (3:00 PM ET).

Fedspeak: Fed Balance Sheet (4:30 PM ET), Money Supply (4:30 PM ET).

MONEYBEAT PODCAST

Paul Vigna, Ben Eisen, and Sarah Krouse talk the slow-down toward Dow 20000 amid an exceedingly quiet holiday season. Then, the Wall Street Journal’s Andrew Tangel joins the show to talk what a new high for the U.S. dollar means for the manufacturing sector.

TWEET OF THE DAY