Daily Market Update – October 28, 2014 (Close)
For those that actually look at the “Economic Calendar” there’s so little on it this week other than the FOMC Statement release on Wednesday.
If this wasn’t a busy week for earnings releases it would truly be like the last week of summer all over again.
Lately, even with a few moments of Ebola related fear, and despite all of the unresolved stories around the world, it has been very quiet. That may explain some of the market’s recent volatility. It’s like leaving a child alone, but with no source of stimulation, so they have to create their own inside of the vacuum they’re in.
Instead of focusing on the varying bits of economic information that is usually released in any given week, this week the mind is free to wander and speculate about so many things. Just like leaving a child with any structure or guidance, that kind of vacuum facing investors can be a dangerous thing.
Maybe that’s what explains today’s odd 187 point higher. There was no other reason that I could see, although the past few days before an FOMC Statement release have also been inexplicably positive, so maybe that’s the simple explanation.
For the moment all is quiet in and around Russia, Hong Kong seems to have abated, the ECB is gaining irrelevance, ISIS may be stalling and Ebola still remains other people’s problem for the most part.
In the meantime oil is at a low point that could scarcely have been imagined not too long ago and corporate earnings have, for the most part been pretty good. With the exception of energy companies those low prices have got to be good news for economic growth and corporate profits in quarters ahead.
By most measures that should mean a soaring market and maybe that constellation of factors is what helped create such a rapid reversal of the 9% decline from just a few weeks ago.
Whether those are enough to continue that climb may get some answer tomorrow as the FOMC chimes in and may give some insight on whether James Bullard’s opinions are more than just opinions and may in fact be upcoming policy.
That might be a short term tonic, but may raise more questions and uncertainty as the need for Federal Reserve intervention takes on the appearance of a medication for a chronic ailment.
Lately there has been some talk that interest rates, originally thought to be poised for a rise sometime in the first half of 2015, may now not occur until 2016. In the meantime, however, interest rates on the 10 Year Treasury Note increased by about 15%, although still far below where so many smart people thought it would be just 6 months ago.
So the question “What comes next?” is a fair one, as there are so many mixed signals at the moment and fairly few inputs to help paint any kind of picture.
This morning I heard one analysts say that the morning’s higher futures meant that it was an indication of investors saying that the world would not end if Quantitative Easing came to an end.
I suppose that one could equally be correct to say that the morning’s rise in futures was an indication that the world was embracing the idea of a continuation of Quantitative Easing.
The strength that the market showed all throughout the day was certainly an indication of something and for some reason.
The more you follow things the more you realize that the diversity of opinion is really the only thing that allows markets to function. This morning, for example, Twitter was upgraded from “sell” to :”hold” at one firm and downgraded to “sell” from “hold” at another. No matter how those ratings may be nuanced a few weeks from now in an effort to protect reputations, there’s not too much debate over the diametric differences coming from two esteemed sources, presumably with access to all of the same input information.
Imagine if it is so difficult to come to an agreement over a single company how difficult it must be to understand where markets and world economies are heading, especially when the inputs aren’t necessarily the most accurate or the books may be cooked, as may occasionally be the case in China.
So at the moment I continue to be in a “watch and wait” mode. If the market does move higher I’m more than happy to be a beneficiary of that move, but I’m not terribly enthused about betting on those prospects for now.
Based on the trades that I tried to execute today, selling new calls on shares of Chesapeake Energy, Holly Frontier, T-Mobile and Joy Global, despite their strength, all of which well out-performed the S&P 500 on the day, there was no such enthusiasm among buyers in the option market.
They weren’t biting.
I don’t know what that means.
If you’re a contrarian it means that those stocks, or maybe the market as a whole, is going higher.
If you look at things on the basis of their superficial appearances, that just means that those particular investors don’t see further upside, but as they say, that’s what makes a market.