The opinions expressed below are my own and do not necessarily represent those of Visdom Investment Group, LLC.
Dust settling
After yesterday’s shakeup, markets collected themselves and kept things calm today. Overnight and premarket trading was quiet and nonfarm payrolls (+165k vs +70k est & +60k prior revised from +29k) did not move prices much, despite the very strong surprise. The S&P opened around +20 points and quickly rose to +90. It gave back some of those quick gains and spent the bulk of the day around +50. The index gave back half of those gains into the close. Megacap tech led. Crude was flat and yields rose a few bips. Capital flow was much lower than yesterday, printing 114%.
The case for yesterday being a one-off deleveraging is a bit stronger today. The small bounce today suggests that margin clerks and risk officers are satisfied for the moment. Various stories of multiple hedge funds sustaining massive losses spread across the financial press today. It appears that the AI trades were very crowded and very levered. Perhaps today’s remaining longs are not at the mercy of margin clerks and prime brokers. The trades are probably still crowded but maybe the entire complex of participants isn’t as exposed as before. It’s a thought going around the Street.
Most of the talking heads are treating yesterday as a shock that is part and parcel with owning stocks. They are explaining that these sorts of events are healthy (in a way) and that one should use these drops as opportunistic moments to buy the dip. I am not dismissive of that thinking.
I am concerned with how quickly the consensus opinion formed that yesterday was *not* an indication of further bearish trends. While not argued on CNBC or Bloomberg today, there is a case that yesterday was a foreshadowing of more downside. There’s a case that markets crossed the Rubicon yesterday. I am not necessarily committed to that either.
My point is that the markets have very quickly settled down after a bolt from the blue. They are quickly establishing a narrative that yesterday was just one of those random events that one must endure but *not* that there’s any signal within the price action.
I find this noteworthy. Maybe the market is ultimately right to move on without serious concern, but the speed at which it has analyzed and explained yesterday is not reasonable to me. There should be more caution out there. There should be more respect for the lingering uncertainty of the current situation.
Markets are less worried today, which is always the case when risk-on trades bounce. I am not second-guessing that reaction. I am second-guessing the conclusion, both implied and explicit, that yesterday was just part of the investing process where two steps forward require one step back.
Have a great weekend, see you Monday.
-Mike
Visdom Market Commentary
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