I will be in Atlanta tomorrow morning speaking at the local NIRI (National Investor Relations Institute) chapter meeting – hosted at the ICE Headquarters outside of downtown Atlanta. So, my next note will be on Monday. Have a great weekend.
The S&P closed at 2707.33 – So today’s circuit breakers are:
Level 1. 189.51 pts (7%) or 2517.82
Level 2. 351.95 pts (13% total) or 2355.38
Level 3. 541.46 pts (20% total) or 2165.87
Listen – To the song here in my heart, A melody I start but can’t complete…. Listen, to the sound from deep within, it’s only beginning to find release…. Oh, the time has come for my dreams to be heard, they will not be pushed aside and turned into your own, all ‘because you won’t LISTEN….Beyoncé – Christmas 2006
And so, it is…. the ALGORYTHMS DON’T LISTEN….
OK – so here is the deal…the papers this morning tells you that the mkt fell after the release of the FED mins….and by 4 pm – that WAS true…but in reality – when the FED mins were released at 2 pm – the mkt was up 17 pts on the S&P…. & 122 pts on the Dow…. – and at first blush – the mins appeared to be a bit more dovish causing the ‘smart logic algo’s’ (those automated, headline scratching, word searching algorithms) to kick into high gear – and by 2:30 pm the Dow had surged ahead by 300 pts while the S&P surged to + 30 pts….as the ‘smart algo’s’ thought that they had everyone beat! (They don’t LISTEN. – thus, the Beyoncé reference…. see how I make that work?)
If they could talk – here is what they would have said –
“Hey! Look how smart we are. The mins are dovish and so it MUST be a BUY opportunity…”
And so, with reckless abandon – they trip over each other to be ‘the first one to the party’ – I mean look at the chart – sending the mkt higher causing the human beings to say –
“Hey – not so fast cowboy…”. and then reality sets in…..the human beings do something that the algo’s don’t – the read the words and then they LISTEN….to the chatter among the crowd……it was then that the tone changed…..the human beings – seeing the mkt rip higher in the face of what ‘seemed’ like a dovish statement but in reality was more hawkish – caused the human broker/trader to ‘HIT THE BIDS (industry jargon for ‘Let’s get the heck out of here!’)……in both stocks AND bonds…..(as prices in bonds fall – the yield rises – it’s an inverse relationship….)
And when the ‘smart algo’s’ realized that they had gotten ‘scammed’ the turned tail and became sellers….and the DOW swung 468 pts (hi to low) ending the day down 166 pts…the S&P swung 40 pts (hi to low) ending the day down 15 pts and the 10 yr bond yield went from 2.895% to 2.943%. – inching ever closer to 3%………. Lighter than normal volumes only exaggerate the moves…. …. So Yes…the headlines are half right…the mkt ended lower – but not necessarily in the way that the headlines would have you believe…. you see there was a bit of ‘drama’ in between 2 pm and 4 pm….. Just sayin…. Welcome to my world….
And life goes on….
You see – the mins reflected the idea that the FED was expecting faster economic growth because of an organically improving economy assisted both tax reform and proposed fiscal stimulus……and that they remained on high alert over what that means for the inflation monster – BUT that they only see 3 rate hikes in 2018….and this is now DOVISH – or less aggressive than the 4 hikes that have permeated the chat rooms around the street…..and while that may be true of the actual mins – the REALITY is that 4 is still very much a possibility and when the mkt turned tail – (the human traders are ignoring the FED mins and pricing in 4 rate hikes) …..because in reality – that is what we are getting this year….4 NOT 3…..you heard it here first…..(Now – the stats suggest that there is a 30% chance of 4 hikes, vs 20% only a month ago….)
Look- clearly the mkts are a bit anxious….or is really the players (asset managers, retail investors, traders, HFT, Hedge funds etc….) who are anxious…..and that is key…I never really understood it when the would say ‘the mkt is nervous’ – THE MKT IS NOT NERVOUS – THE PLAYERS ARE NERVOUS……and because the players are nervous – the MKT by default becomes a proxy for that anxiety…and so you see volatility either increase or decrease as it measure that level of angst…..and so – yesterday was just another example of how quick the tone can and will change. And this change always creates opportunity……. (keep that in mind…)
Investors/traders do remain on the edge….and February is shaping up to be one of the worst months for global stocks in over a year….as the concern builds about future central bank policies, global inflation, extreme valuations, rising rates, chaos in DC – I mean who would have thought ‘chaos in DC’??? And with so much of the recent macro data points suggesting that inflation is no longer sleeping – investors are suddenly waking up to the ‘new normal’…….and that new normal will surely include – higher rates and more volatility in the days/months ahead.
This morning in Europe – stocks are under pressure as US rates increases dominate the conversation…weaker German IFO Business Sentiment along with weaker UK 4th qtr. GDP are not helping…. Europeans are not dummies (some of my best friends are Europeans – so that should speak for itself) and they also understand that there is a good chance that they too may be behind the 8 ball when we consider what inflation could do. The ECB debate on capping asset purchases is due out today and many of those PM’s are keying in on that decision…. They also had a couple of significant earnings misses…. that act as a catalyst to just take some money off the table and ring the register….…. FTSE -0.92%, CAC 40 -0.47%, DAX -0.76%, EUROSTOXX -0.53%, SPAIN +0.16% and ITALY -0.60%.
US futs have now gone from – 4 pts to + 7pts (11 pt swing) as St Louis Fed Pres Jimmy Bullard takes to the airwaves on CNBC Squawk Box at 6:30 am…. warning that
‘Too many rate hikes this year could slow the economy too much’.
He also said that he sees no risk of rising inflation…and so the message is once again BLURRED……which is it? Everyone has a different opinion and investors will react depending on who is talking….
“The idea that we need to go 100 bps (4 hikes) in 2018, that seems like a lot to me. Everything would have to be just right. The economy would have to surprise3 on the upside a bunch of times during the year. I’m not sure that’s a good way to think about 2018” – J Bullard.
BTW – Bullard is NOT a voting member – so his opinion is his opinion and has no weight in the vote……And Bingo – the algo’s read that headline (they see FED Pres Bullard) and BOOM – they take futures up 11 pts (low to hi) and WE’RE OFF!!!! “Burn Baby Burn…. it’s a Disco Inferno….” (Sorry I was listening to the Trammps on Pandora while I was writing this….)
OIL is down 0.18 cts at $61.51 – even in the face of a surprise decline in inventories….as the dollar continues to advance on the back of the FOMC mins yesterday. The dollar index (DXY) is now up 2.25% since early February – while Oil is down 10% in that same time slot…… (stick with me kid – I’m not gonna let you down) ….
Take good care –
Simple Roasted Chicken
This is just simple to make and you can make great roasted chicken salad with the leftovers. Prep takes you all of 15 mins….
For this you need:
1- 5 lb oven stuffer, carrots, onions, celery, potatoes, butter, chicken stock, white vinegar, s&p. (or adobo).
Preheat oven to 350 degrees
Remove the bag from the cavity and rinse the chicken. In a large roasting pan – place the chicken on a bed of the chopped veggies. Qtr the potatoes and place strategically in the pan. Season w/ s&p (or the adobo), splash a bit of white wine vinegar and add a bit of stock. Cut up a stick of butter and add to pan. Cover tightly with foil and place in oven.
Place in oven covered in foil and allow it to cook for 2 hrs…. Now – remove the foil, baste the chicken and allow to brown up. Maybe 30 more mins or so…. Once it is nice and golden – remove and let rest for 5 mins or so.
Slice nicely, place the legs and thighs around the platter and the sliced breast meat in the center. Adorn with the veggies and potatoes. Serve with a large mixed salad dressed in your favorite dressing.
“The market commentary is the opinion of the author and is based on decades of industry and market experience; however, no guarantee is made or implied with respect to these opinions. This commentary is not nor being it intended to be relied upon as authoritative or taken in substitution for the exercise of judgment. The comments noted herein should not be construed as an offer to sell or the solicitation of an offer to buy or sell any financial product, or an official statement or endorsement of O’Neil Securities, Incorporated or its affiliates”