Daily Market Update – March 10, 2015 (9:00 AM)
While yesterday was nice, the market increase that resulted in half of Friday’s irrational sell-off being erased, was only rational itself if it was a way of trying to make up for Friday’s transgression. Otherwise, there was no reason to see the market rise 160 points, but usually that sort of climb is just accepted at face value and enjoyed for whatever it is.
But that’s not a very good reason for anything, especially if only half of what was lost was made up. All of the good reasons in the world can’t make up for that kind of deficit on a regular basis. When there’s no real reason for a decline any bounce back can only be considered as a down payment from a less than credit-worthy client.
This morning, the futures are pointing to another large and irrational downward move.
This time, a nearly 200 point loss is being blamed on what must be a sudden realization that the strong US Dollar will be deflating corporate profits. Somehow, this morning, there seems to be a belief that no one had recognized that exchange rates have been rapidly bringing the US Dollar and the Euro closer and closer to parity.
I don’t understand too much about currencies, nor interest rates, but I do understand the basics and I especially know that there’s not been a secret that the US Dollar had been strengthening and cutting into profits, even as it makes it much more enjoyable to be vacationing abroad.
Either the cause for the morning decline is true, in which case there is reason to worry about those in charge of such huge chunks of the world’s investment dollars or people just need to find an excuse and this just seemed to be the first available culprit.
Listening to the “Chief Global Investment Strategist” of Blackrock in referring to the impact of a stronger US Dollar say that “people are just beginning to realize… ” makes me wonder what people he’s talking about. The people that I know aren’t capable of moving markets if they had come to the same sudden realization, so he must be referring to some other people, who you would think wouldn’t be in a position of being surprised by something fairly easy to predict as part of a well established cycle seen over and over again.
On the other hand this just may be the starting phase of another of these mini-corrections, the kind that had been occurring much more frequently during the end of 2014 early part of 2015. From the end of January 2015 until the end of February we had been in a consistent climb higher. During the previous 2+ years, we had been on an almost clockwork-like correction every two months until that period from about October 2014 to January 2015.
While there’s nothing encouraging about a 200 point decline facing you to start the morning, there may be some encouragement if the decline is part of just another in a series of periodic corrections. The lesson learned from those over the past couple of years has been that those corrections are either good times to add positions, or at the very least bad times to sell and run away.
Most of the time you don’t really pay too much attention to what the pre-open futures are indicating. Last week was a perfect example of the lack of correlation between those early trades and the rest of the day, especially when the early trades are showing only mild or moderate changes from the previous day’s close.
Where the association is high, however, is on mornings like this. When the movement is a large one it does tend to perpetuate itself as normal people wake up and either make their calls in to their brokers or automatic signals hit their managed accounts. Those usually sell when the market is sharply lower or buy when the market jumps higher.
So this morning will simply be one of watching, as yesterday’s close had us barely 2% below the high on the S&P 500, leaving about another 3% before the current declines become part of a typical 5% retreat. That’s about another 60 points on the S&P 500, with only about 18 of those being represented in the morning’s early trading.
Who knows? Maybe those brilliant people that just came to a realization that currency exchange matters may also brilliantly conclude that there are bargains to be had.