In Friday’s video macro update I suggested that the negative correlation (of late) between stocks (tech in particular) and higher interest rates might — in light of Friday’s big jobs number — be put to the test this week.
Well, indeed, rates are on the rise this morning and, so far so good, stocks (tech even) aren’t even flinching. Our core tech ETF is up 1.14% on the morning, so far.
Options traders, on the other hand, aren’t yet convinced. VXN, which tracks implied volatility priced into Nasdaq 100 options contracts, is up 3.15% this morning. That’s in direct opposition to the optimism we’re seeing in the tech space. I.e., the two, virtually by design, typically move in opposite directions.
While I suspect that those who are bidding — either through hedging or speculation — up the price of volatility are playing that negative yield/growth stock correlation, I wonder if the latest flows data hasn’t got their attention as well.
I’ve explained/illustrated herein over the past year a number of 1999ish characteristics of the present stock market setup, not the least of which being the dotcomish (i.e., reckless) abandon of the retail investor coming off of last year’s COVID lows.
Well, per yesterday’s Wall Street Journal article titled Individual Investors Retreat From Markets After Show-Stopping Start to 2021 it appears as though retail investors — despite just receiving another round of stimulus checks — are losing a bit of that giddiness; I suspect many have felt the pain of the recent, albeit modest by historical standards (although history is not something many in this cohort have experienced, nor studied), hit to many of the more growthy names:
“Individual investors kicked off 2021 at a sprinter’s pace. Now, they are finally showing signs of fatigue.
Trading activity among nonprofessional investors has slowed in recent weeks after a blockbuster start to the year, with the group plowing less money into everything from U.S. stocks to bullish call options. Daily average trades for at least two online brokerages have edged down from their 2021 highs. And across the industry, traffic to brokerage websites, as well as the amount of time spent on them, has fallen.
Individual purchases of stocks were down 60% on a net basis near the end of March and traffic to retail brokerage sites has tumbled, with visits to Robin Hood’s down 63%.”
Yikes! Robin Hood better get that IPO off the ground!
Several Asian markets were closed overnight. 6 of the 9 we track that were open finished the session lower.
Russia is the only European equity market we follow that’s open for business this morning; it’s down 1.05% as I type.
U.S. major averages are in rally mode to start the session. Dow up 362 points (1.09%), SP500 up 1.25%, SP500 Equal Weight up 0.86%, Nasdaq 100 up 1.52%, Russell 2000 up 0.59%/
The VIX (SP500 implied volatility) is up 2.77%. VXN (Nasdaq 100 i.v.) is up 3.10%.
Oil futures are down 2.83%, gold’s down 0.02%, silver’s down 0.04%, copper futures are up 3.57% and the ag complex is up 0.35%.
The 10-year treasury is down (yield up) and the dollar is down a big 0.47%*.
Led by metals miners, tech, consumer staples, materials, industrials and base metals futures — but dragged by oil services, energy, India, MP (rare-earth miner) and solar stocks — our core portfolio is up 0.51% to start the session.
Author and portfolio manager Diego Parrilla warns us to not be lulled by the apparent letdown in exuberance the WSJ touched on yesterday:
“Financial bubbles are often associated with exuberant market behavior, a sense of excess and market craze that drives a surge in asset prices unwarranted by the fundamentals. As a corollary, any apparent lack of exuberance can be misunderstood as a new paradigm, as it gives the perception of stable equilibrium, instead of the unstable equilibrium that characterizes bubbles.
Indeed, I believe the most dangerous bubbles are driven by complacency, a sense of conformism that makes us believe that unstable equilibriums are stable.”
Have a great day!