Risk Happens Fast
- Risk happens fast – Trump trade policy whacks futures this morning
- We remain in a trading sardine market – not an eating sardine market
- Hastily crafted policy that conflates politics is dangerous in a flat and networked world
- The return of an untethered Orange Swan is market unfriendly … brace yourselves
- The Supreme Tweeter will likely “Make Uncertainty and Volatility Great Again” (#MUVGA)
The First Half of 2018
The first half of 2018 has been a tale of two markets. Maybe three markets.
January brought a market fervor – in which global equities rose dramatically, likely in response to the expected stimulative contribution and impact of the Administration’s reduction in statutory tax rates.
As interest rates began to climb in January, bullish investor sentiment crested and the risk parity trade went array.
Stocks fell violently in February and the new regime of volatility commenced – in a market revealed as increasingly illiquid.
The S&P Index fell from nearly 2900 and successfully tested the 2550 level twice. Several meek rallies commenced but the S&P had 2-3 more successful tests at about 2600 and stocks recently closed in on 2800 (S&P Index).
1Q-2018 corporate revenues and profits didn’t disappoint but the complexion of the market had clearly changed – and valuations (the S&P Index’s price earnings ratio expanded by almost 3 points in 2017) began to contract. Wall Street, which outperformed Main Street in 2017 – reversed roles in the first six months of 2018.
While the stock market reeled with volatility since January 1, the FAANG stocks generally stood tall throughout the year as the market narrowed and investor interest focused on the 5-10 anointed stocks.
The first half of 2018 was also characterized by a series of questionable and controversial presidential policies (the most recent being trade/tariff decisions) at the same time the Federal Reserve was pivoting on monetary policy. By overtly playing to his base, having little sense of economic history, Trump has contributed to even greater volatility in a market without memory from day to day.
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