By the time the day finished yesterday, the headline news had just about done all it could do to wreck the market. What we saw yesterday was a market freak out across the globe.
- U.S. stocks sank on Thursday, with the S&P 500 posting its biggest one-day percentage drop since April 10 on news that a Malaysian Airlines passenger jet crashed near the Ukraine-Russia border.
Oh, and don’t forget about Israel attacking Gaza, the US and Europe imposing sanctions on Russia, a “fishy” package found on the White House lawn, and Google missing profit estimates but increasing on revenue.
- The yen hit a five-month high versus the euro on Friday and held some of its overnight gains against the dollar as investors saw the currency as a safe haven after the downing of an airliner over Ukraine and the Gaza conflict stoked geopolitical tension.
Shoot! There is one more thing the breathless media trotted out yesterday. Although not as serious as the geopolitical news, the idea that the SEC is going after some of the big bullies in the market is news indeed.
- According to Bloomberg, which cited an SEC filing, a regulatory investigation of insider trading concerning the U.S. House Ways and Means Committee involves 44 hedge funds, including 25 funds located in New York.
Now, add to the mix Janet Yellen’s comments on Wednesday about the sectors of the market that are, well, overvalued, and the Fed’s Mr. Bullard’s comments yesterday suggesting the US economy is doing so well that the Fed might just let interest rates rise even more quickly than previously suggested and the conditions for a market freak out shape up and the storm begins.
As to Ms. Yellen’s comments, she did us small-cap players a great disservice, for sure, yet her direct intrusion into the market might not last long because, as I have stated, the overall conditions for the market are mostly fair-weather conditions for the nearer and longer term, which means buyers will return to the small-cap arena for their returns.
- Broad-based increases in the LEI over the last six months signal an economy that is expanding in the near term and may even somewhat accelerate in the second half.
Witness the “dead-cat bounce” today in the market. I use the term because I know it will appear elsewhere today in the financial media to explain the market rebound, if the market rebound holds on and finishes today strongly. If it does, it will be a classic case of the buyers taking advantage of opportunity, and make no mistake the bulls see little that will stop the “long-in-the-tooth” bull run of the last five years. Remember, most of the last five years was playing catchup to a really, really big market freak out.
Yes, Ms. Yellen was correct about the “hot” small-cap market, and that is correcting itself, but if one inferred from her comments that the whole of the market is way overheated, one would be framing up the possibility of missing opportunity. The valuations vs. P/E gap in the market will be better after this current earnings season, I suspect.
- While stocks are somewhat pricey compared to historical levels, few fund managers voiced fears of a rerun of the late 1990s dot-com bubble.
Right now, the S&P, Dow, NASDAQ, and RUT (Russell 2000, small-cap index), as well as every other index I track are up solidly. Will they remain that way for the day? We will see, but as I mentioned yesterday, I also watch the VIX and gold to gauge the market and both are down today. The VIX is down some 14% in fact, right where I like to see it – in the mid-twelve range – and that to me is a good sign the market will recapture the losses of yesterday soon enough, unless, of course, we have another day of reporting that looks like the world is falling apart.
Trade in the day; invest in your life …
