The opinions expressed below are my own and do not necessarily represent those of Visdom Investment Group, LLC.
It’s bumpy out there.
Risk-off gathered significant momentum at 2 AM this morning. That’s an hour before Europe opened. S&P futures fell for two hours, down almost 100 points at the worst. Futures and Europe bounced around 4 AM. There’s no key news item that we can highlight to explain why selling accelerated at 2 AM. General concerns surrounding credit continue to swirl but nothing significant broke on that front in that period. Perhaps some technicals were at play since the S&P futures accelerated lower after piercing the 200-day moving average? As an aside, the Dollar weakened significantly until 2 AM, at which point it bounced considerably. Is the Dollar leading risk-assets now?
There are many questions lingering due to this morning’s action. We don’t know why prices did what they did but they managed to scare markets fairly broadly. It wasn’t too severe but there were a lot of what-is-going-on-out-there questions being asked. A lot of investors were wondering if the market knew something awful that they didn’t.
As newswires lacked scary headlines, investors started to dip-buy. There were pops and drops throughout the day but the bulls finally won-out with a solid rally from 1:45 PM on. Capital flow was unsurprisingly higher at 120%.
What are we to conclude from today’s hijinks? If one only pays attention to the close, the market simply responded to yesterday’s drop. The dip-buyers did their thing and the bull market *should* continue according to plan.
But we shouldn’t ignore the morning’s price action. Since October 10th, the market has been much more volatile than since the April bottom. October 10th was when President Trump resumed tariff talk w/r/t China and its rare earth metals controls. Is that issue at the heart of all this? After the initial scare, investors assumed that it was saber-rattling. They assumed things would work themselves out quickly and quietly and without real impact.
Are investors rethinking that? Is the US/China situation a slow-motion collision that remains in place?
I don’t think so but the issue isn’t *resolved.* It’s possible that markets are tallying up the risks, some unrelated, and wondering if something, anything, could ruin the party.
At the moment, the notable risks are as follows:
Each of these arrived on the scene with small associated risks but as time passes, they don’t appear to be fading. The last two are particularly *more* significant today than they were a week ago. The US/China situation is a riddle wrapped in a mystery inside an enigma.
It feels like the continued existence of all these, seemingly growing risks, is leading to more and more skittishness in the market.
If only I had a crystal ball that told me how these risks would resolve. Sadly we must all wait and see.
One thing is certain. If these risks resolve without impact, today’s buyers will be big winners.
So we should ask ourselves, are these risks showing themselves in small parts, as an advanced sign of pending calamity?
Or are they perceived boogeymen by nervous markets?
I don’t believe there is such a thing as a middle ground on this one. It’s either a big nothing or a big something.
See you Monday, have a great weekend.
-Mike
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