Wednesday, November 4, 2020

Morning Note: Whimsical

If you look at the major U.S. stock market indices this morning you'd think all's well on Wall Street. But if you open a few doors and peak inside, well, hmm...

As I type, the Dow's up 413 points (1.50%), the S&P 500 is up 1.91%, the Nasdaq is up 2.86%, and the Russell 2000 is, one exception to the first sentence, down 0.81%. All the while U.S. banks are down a massive 4.15%, along with, albeit a bit less severely (but painfully nonetheless), materials, financials and energy.

Essentially what we're looking at is the anticipation of an election result (the control mix in particular) that's different than what the anticipation's been the past few weeks; the past few weeks tech (up 3.57% this morning) has been getting beaten down while the value stocks (read 2nd paragraph) were threatening to come to life. The phenomenon was being dubbed "the reflation trade." Basically, this morning, the market doesn't see the same prospects for monster fiscal stimulus it was seeing just yesterday. 

I humbly disagree, stimulus (big stimulus) is on its way regardless (timing???) but, then again, our time horizon is a bit further out than this morning.

Asian equities did well overnight, with 12 of the 16 markets we track closing in the green. Europe's in rally mode again this morning, with all but 1 of the 19 bourses we follow trading higher. U.S. (see above).

The VIX (SP500 implied volatility) is crashing, down 20.70%, to a still dangerously high 28.21. VXN (Nasdaq vol) is down 16.88%.

Oil futures are up 0.48%, gold's down 0.13%, silver's down 0.27%, copper futures are down 0.40% and the ag complex is down 0.14%.

The 10-year treasury completely rejects the notion implied by the falling VIX; rallying huge this morning! Its yield is literally down 12% to 0.775 as I type. It does, however, completely confirm the notion implied by the selloff in those "reflation" sectors I mentioned in paragraph 2. I.e., weak economic prospects.

The dollar's flat, -0.08%.

Led by healthcare, tech, emerging market equities and Eurozone equities, while being held at bay by the sectors referenced in paragraph 2, as well as commodities, our core portfolio is up 0.64% so far this morning. 

Hari Krishnan, head of volatility strategies at SCT Capital is on my short-list of exceedingly sharp players in today's world of sophisticated portfolio managers worth listening to. 

In a RealVision interview yesterday he made a statement that very much resonates with how we view the business of managing our clients' wealth around prevailing opportunities and risks. 

"The way I think about managing money, is that you have to manage money over various horizons. You don't just say "oh, I'm looking to make 10% over the next year," not if you're a sophisticated hedge fund manager." 

Again, I couldn't agree more. Anything less is tantamount to chasing around a most whimsical market. A market that ultimately could lead the chaser off the proverbial cliff:

Have a great day!

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