Market Briefing For Monday, June 26
A pervasive theme during the projected post-Trump Victory rally, has lots of money managers and analysts 'presuming' that passive investment really has changed the complexion of markets forever. The illusion of central bank and other liquidity flows persisting, contributed to building this new kind of confidence, that ignores economic realities or even the nature of this latest upside phase being a 'normal' seasonal re-balancing and end-of-Quarter upside bias, which won't necessarily persist.
Sure there is a basic recognition that legislative initiatives must pass (health and tax reform at the forefront); and that the longer term can be favorable if we move in these directions that facilitate 'real' growth, entrepreneurship, as well as capital repatriation that will assist big companies in recommitting lots of resources to growth within the USA.
This has been our primary argument 'for' a stronger-than-anyone expected move higher in the S&P 'if' Trump won, as you all know. And since March it has transitioned into a rolling correction that at times eased overbought or extended valuations in some areas; while creating it in others. This has for sure been a musical chairs variation on rotation, which has been largely a success for the S&P and for NASDAQ, especially with Oil stocks so soft.
I'll touch on a few more aspects of this pattern, that we've navigated without succumbing to the 'gloom & doom' superbears, or even normally optimistic hedgers and quantitative analysts, most of whom have fought this for weeks if not months. We are skeptical of much further near-term extensions but as of now we still have not shorted this market aside some intraday fades that in most cases we thought traders should just engage in hit & run tactics. At the same time investors use rallies to build cash or sideline fresh cash, and not get excited about playing the downside, though a correction's coming.
In sum, it's pretty evident our approach has been a proper strategy, since of course having bought the lows around Election Day; we're disinclined to chase this market, and have had no need to scurry around at high levels.
Pundits that somehow believe they're capable of seeing strength build upon strength, by rotating indexes and to a degree sectors, without concern about having orthodox corrections of any size or substance, share a predominant view that in a sense has been assisted by so many shorts periodically (daily at times) being run-in, after intraday selloffs get nowhere.
Along the way a few experienced hedgers have fought this lift, and the philosophy of a market moving up despite the economic disconnect, while for the most part missing the post-Election move if they did; or chasing after FANG stocks and the like, after they were extraordinarily expensive.
|
That activity we've analyzed properly ourselves; the difference is up to now we've been very reticent about playing for a downside market move. Hard to say whether it will take a 'black swan' event, an algorithmic selling squall, or both in sequence for that matter, to take this market down or whether we'll get an oil crisis that changes the mix considerably.
(And we don't buy-into a prevailing view that cheaper oil is bullish like the old days, because not too cheap would be entirely disruptive and actually contribute to a geopolitical instability that's already evident in the Persian Gulf antipathy between OPEC members, as well as Russia. All have lots to lose with cheap oil; and much to gain from higher prices. Would they foment a conflict, which has nothing to do with the West as such; just to get Oil up? That's a question that a few analysts are starting to ponder. We will say that a moderately higher Oil price would be a market-calming influence for now.)
Disclosure: None.