Wednesday, September 9, 2020

Morning Note: Natural Rhythms

Asian equities followed the U.S. into the red in the overnight session; 14 of the 16 markets we track closed lower. Europe, on the other hand, is rebounding sharply this morning; 17 of 19 bourses are trading notably green thus far. U.S. markets are, as I type, attempting to break a 3-day string of sharp losses with an impressive rally: Dow up 453 points (1.65%), S&P 500 up 1.86%, Nasdaq up 2.25%, Russell 2000 up 0.34%.

The VIX (SP500 implied volatility) is appropriately lower, by -8.23%, as is VXN (Nasdaq vol), -9.02%.

Oil futures are rebounding from yesterday's monster beating, up 2.29%, gold's up 0.76%, silver's up 1.05%, copper futures are up 0.55% and the ag complex is bucking the upward trend, down -0.46%.

The 10-year treasury is trading lower this morning (yield higher), as is the dollar, -0.22%. Our core portfolio, with all but 3 positions (banks, ag commodities and the yen) in the green, is up 0.85%. Leading the way are tech, Eurozone equities, materials, healthcare and consumer staples. 

Note how the negative correlation I've been pointing to of late between the dollar and equities continues to play out this morning. Now, while I indeed see a strong dollar as a huge headwind against the prospects for making it out of this credit mess "alive", this correlation over short time frames will definitely not hold nearly as tightly as it has the past few sessions. I.e., there, in my view, will definitely be many days where the two move in tandem. 

In yesterday's note I stated:

"...a snap-back rally on a, well, you name it headline or two, is very much in the cards as well. Measuring the snap-backs (the volume, the breadth, the velocity, etc.) then becomes the exercise that'll help us assess the odds from there."

We'll see how this one plays out.

Keeping this morning's note brief, I'll leave you with this from Strauss and Howell's The Fourth Turning:

"The reward of the historian is to locate patterns that recur over time and to discover the natural rhythms of social experience."

As the ups and downs of markets are, by definition, "social experiences", locating their patterns and natural rhythms is of course essential to the effective management of investment risk.

Have a great day!

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