A few times each week I write myself a little letter about the market; it becomes a nice tool for future reference/commentary. And while my notes often have little to do with what long-term investors should concern themselves with, the exercise keeps me very in tune with the market’s day-to-day gyrations, and, thus, the headlines that might pique our clients’ interest/emotions. I.e., the stuff that needs putting into investor perspective.
9-13-16
Well, so much for the lack of
volatility. Friday’s huge spike appeared
to be on Fed-speak that defies futures trading and recent economic releases.
Monday’s swoon (in volatility; huge rally in stocks) appeared to be on Fed-speak as well — as L. Brainard aggressively
made a case for patience. Today, however, volatility’s back with a vengeance
(vix up 19%, at 18, and the dow’s down 221).The Delivering Alpha conference
gets underway today and the popular hedge fund heads are, by and large, singing
a bearish tune — which no doubt speaks
to their positioning. Headlines such as “Paul
Singer: This is a very dangerous time for investors” and “Dalio sees dangerous situation with global
debt” might be adding a little to
this morning’s angst. I’d replace Singer’s “investors”
with “traders”.
There’s also a case being made
that the spike in volatility coincides with Hillary Clinton’s health scare(s) and/or her waning poll numbers.
“The devil you know” aptly
characterizes Wall Street’s desire for November.
Diving deeper: the fact that very
recent data out of Japan and China show upside promise I believe aids the message of those Fed members who’ll be arguing
for a hike during next week’s meeting. Clearly, as Brainard confessed
yesterday, the dollar is highly in focus. Should the Fed hike against other
central banks’ easy money policies, along with a relatively healthier U.S.
economy, the dollar can scream higher — and a screaming dollar had been a
real headwind for the U.S. economy, as well as the stock market, leading into
this year. If, however, other economies are on the mend and, therefore, their
central banks can ease off their respective pedals, one could surmise that the
U.S. can do a rate hike without capital fleeing from all corners to the dollar.
Is the market sensing the above and, therefore, shrinking amid higher odds of a hike
than Fed funds futures are pricing in? Maybe, although you might think that that (an improving global picture) would alleviate the market’s worry over the potential hike fallout. Or, and
more likely, traders indeed sense this deeper dive and see a greater-than-presently-priced-in
chance of a hike, and are simply getting ahead of what they expect would be an immediate selloff should it
happen.Here’s the irony, if the market
continues to tank into next week’s meeting, there’s a good chance of a rally on
the news, if they indeed hike. I.e., it’ll be priced in, and the Fed will
soften the blow big time with the post meeting commentary.
Technically speaking, the S&P
found support at 2120 (prior resistance) yesterday, and successfully tested it
this morning — I still see 2100 as potentially
firmer support. The 50 and 200 day moving averages suggest strongly to traders
with more than a few weeks time horizon — and investors — that this is volatility to ignore, for now. click chart to enlarge…
