The opinions expressed below are my own and do not necessarily represent those of Visdom Investment Group, LLC.
Confident.
Overseas markets rallied mostly and assisted our futures to the upside in the premarket. Some weakness in Europe dented S&P futures ahead of regular hours trading but the S&P popped at the open and began the day about +10 points. Unlike earlier in the week, the index had strength in the morning. The bears pushed the tape lower after lunch and the market went negative briefly in the afternoon. The S&P treaded water for the rest of the afternoon. Investors were a bit more active than usual with capital flow of 112%. Yields climbed small across the Treasury curve, potentially hampering the efforts of the equity bulls. Fed Funds futures markets haven’t altered their views, pricing a 24 bip cut on October 29th and 22 bips of further cuts on December 10th.
Today’s lack of nonfarm payrolls data was a story today but investors went about their usual business just the same. The thinking is that labor markets are softer but not worrisome and markets are fine waiting for the official release, as long as the wait isn't too long. Also missing the *next* nonfarm payrolls release come early November would certainly spark some nervousness.
In the meantime, the tide continues to rise. The S&P printed another all-time high this morning and market sentiment is confidently bullish. The calm certainty in the bullish trend is remarkable. It’s certainly understandable considering how successful dip-buying has been. It’s worrisome that so many are so cavalier.
Markets are on rails, and they’ve been this way for a while. Investors are unfazed by lesser headlines and data. Small risk-off events are ignored, or quickly exploited, until the tape turns. Only a major negative catalyst will change the prevalent investor behavior.
In the foreseeable future, there’s no credible risk on the calendar either. This is another usual circumstance. Potential events are earnings season, the FOMC decisions, and economic releases along the way.
Earnings season starts in a week and a half. It would take broad and large earnings disappointments at this point to turn bullish sentiment… and we haven’t seen preannouncements. So this earnings season doesn’t seem to hold the usual risk.
The FOMC is low-risk. The market and the Fed are on the same page. Both presently see the world in the same way and a surprise is quite unlikely. A surprise that would crack the market? Quite a longshot.
Much economic data is paused because of the shutdown. Markets just continue per the status quo. This means that during the shutdown, we don’t have the usual data-driven risk. When the economic data eventually publishes, maybe we’ll get some volatility as prices adjust but we’d have to see surprise signs of a recession to actually reverse the bullish trend. What are the chances that a secret recession is happening at the moment?
A bolt-from-the-blue event could turn the tide, but that’s always the case.
It’s a rare environment where the bulls not only hold the cards but the deck is also in their favor. That’s what it looks like to me.
Have a great weekend, see you Monday.
-Mike
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