For today's commentary I thought I'd simply (after cleaning it up a bit) share this morning's entry into my log. This, I suspect, merely scratches the surface in terms of what's moving the market around, hence my subtitle:
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...