Can the Stock Market Ever Go Down?
Posted onAlthough all three benchmark US stock indices retreated minimally on Friday, last week was another record setting week for the markets. Since July 7th, Emini Nasdaq 100 futures did not have a single down day, until Friday. Along with the Emini S&P 500 futures, this marked an awe-inspiring consecutive 10-day winning streak for the two index futures.
According to data from FactSet, this impressive day-after-day market climb hasn’t happened since February 24th, 2015. Thursday marked the Nasdaq’s 41st record high of 2017. The Nasdaq made a fresh new all-time high at $5,932.61 and the S&P 500 went into uncharted territory to print as high as $2,477.62.
Analysts attributed Friday’s very minor decline to profit taking. Stocks have had an incredible run and have broken more records this year than in the past decade, so minor declines seemed appropriate at some point. All three market indices closed well within 1% of their respective records on Friday.
Referring to the minor sell-off on Friday, Bruce Bittles, the chief investment strategist at RW Baird & Co., noted how “we had a nice build up in the market with the S&P 500 hitting a record and the market typically does not go up in a straight line.” Or does it? Stocks didn’t exactly crash down on Friday. Compared to the amount of gains in the market last week, Friday’s decline is a drop in the bucket.
“When you see 10 straight days of gains, you can expect a little pullback in the short term, but the breadth we saw in the Nasdaq over the rally speaks very well for what can happen down the road,” said Wayne Kaufman, chief market analyst at Phoenix Financial Services.
Much of last week’s market gains were driven by upbeat earnings reports, positive economic data, and weakness in the US dollar.
Technology giants Microsoft and Apple, trading under ticker symbols, MSFT and AAPL, respectively, contributed to much of the Nasdaq and S&P 10-day winning streak. Microsoft hit a new all-time of high $74.30 on Thursday when it released earnings showing larger than expected cloud computing demand. Most of the gains were given up on Friday, however.
On the currency front, continuing weakness in the US dollar was not only a boon for US stocks, because they became cheaper for foreign buyers, but the weak dollar also helped everyone’s favorite precious metal – gold.
Gold logged its highest settlement in over a month as it rose $9.40 to settle at $1,254.90 per ounce on Friday. This is the highest settlement for the yellow metal since June 23rd. When included with last week’s rally of 1.5%, this is an impressive winning streak for gold. Besides the weakening dollar and the possibility of a slower than expected rate hike schedule, lingering political uncertainty in the Trump administration helped gold settle higher as well.
What the market has in store for the rest of this week is anyone’s guess. After making new all-time high after all-time high, will it ever stop? The answer is unknown, but what doesn’t seem to be changing anytime soon is the fundamental thesis to own best precious metal in the world.
Since 1975, Blanchard has successfully helped over 450,000 clients invest wisely in precious metals and rare coins. As always, our team of experts are here to help you make the right decisions and capitalize on opportunities in the precious metals market.
Call us today at 800-880-4653
What Are the “Deep Fundamentals?”
Posted onWriter and futurist Alvin Toffler once described the people of America as a group that will “question if they will ever receive the pensions for which they have worked.” He examined the causes of these concerns which include surging health care costs and ineffectual politicians. “How, everyone wants to know, will this seemingly chaos affect our wallets? Will we even have wallets?”
Toffler wrote these words over a decade ago, however, they remain resonant today because the problems are inherent to our economy. Toffler argues many citizens suffering at the behest of monolithic enterprises. Moreover, consumers are increasingly feeding fuel to the fire. He introduces the word “prosumer” to describe the phenomenon of Americans consuming the very material they create. This material is often user-generated online content. “The dramatic effect of this shift from tangible to intangible inputs and outputs can be seen as investors buy up billions of dollars’ worth of shares of companies whose products are ‘untouchable.’”
Toffler’s foresight was impressive. The whispers of this future have given rise to a discordant cacophony upending conventional interpretations of or economic system. In his book Revolutionary Wealth, Toffler suggests that understanding this change requires not a review of the fundamentals but rather an exploration of the “deep fundamentals.”
“Today’s entire structure of wealth creation is quaking and rocking, suggesting even bigger changes to come.” Today, we’re seeing this prediction unfold as the concept of a prosumer economy pervades the financial world. However, Toffler, if alive today, might be surprised to discover that this change is not all bad.
Consider the recent news that Intercontinental Exchange Inc. (ICE) will assume the critical responsibility of supervising a key measure of silver prices. The organization will run daily electronic auctions that determine the London Bullion Market Association Silver price. This move represents the continuation of a trend which seeks to diffuse the responsibility of precious metal price calculation across millions of transactions. Before ICE, some gold and silver prices were determined by only a small cohort of banks. Why did this practice end?
As Toffler astutely noted, there were unseen, deep fundamentals at work. Those deep fundamentals were a sustained practice of rigging precious metal markets. “Deutsche Bank AG, UBS Group AG and half a dozen other financial institutions have collectively paid billions of dollars over allegations that they manipulated Libor or related interest-rate benchmarks. Deutsche Bank and UBS both entered guilty pleas over their roles,” explained a journalist writing for the Dow Jones.
By leaving these price calculations to the masses, via electronic exchange, we have a more accurate, more fair market at work. While it’s true that companies like Facebook and YouTube continue to profit from unpaid labor, the democratization of precious metal pricing with the advent of ICE is a welcome change from the consortium of guilty banks.
Toffler warned of the problems that occur amid “a mismatch between the demands of the fast-growing new economy and the inertial institutional structure of the old society.” However, as a society we’re discover how we can match this breakneck speed as we aggregate the resources of the public with the very technology that drives Toffler’s “fast-growing new economy.”
Measuring the Value of Your Rare Coins
Posted onWhether you are just getting starting collecting rare coins or you are a seasoned numismatist, it’s important to understand how to measure the value of your rare coins.
There is a marketplace for rare coins that is driven by supply and demand. The good news for rare coin investors is that supply is limited. The United States Mint isn’t creating anymore Silver Peace dollars or Indian Head Gold Dollars!
The demand for your coins will be measured by a number of key features including:
- The coin’s condition
- It’s rarity or scarcity factor – which impacts collector’s demand for the coin.
- Demand for that coin.
- The value of the coin’s precious metals content.
Rare Coin Values In 2017
At the mid-year mark, the PCGS3000® Index, which includes 3000 rare coins has slid lower on the year. The index was recently valued at $57,920.49, down from its 12-month high at $62,559.94. This is a very broad index including a wide variety of coins.
For long-term perspective, the index began in January 1970 at $1,000 and climbed to its all-time high at $181,088.48 in May 1989. The long-term appreciation from 1970 to the present is significant.
Interestingly, the Key Dates and Rarities Index is also down off its 12-month high, but not by much! The 12-month high stands at $26,405.30, while the index recently stood at $25,284.47, only a marginal decline.
What does this reveal?
For coin investors, it pays to focus on quality and rarity.
Key date and rare coins are maintaining their value better than the broader rare coin market. Just like in real estate, where the mantra is location, location, location. The key consideration in coin investing is scarcity, scarcity, scarcity.
If you have $5,000 to invest in rare coins – it could be more prudent to invest in just one rare coin – the highest quality and rarity that you can find, as opposed to spreading that $5,000 out over a number of less rare coins.
Older U.S. coins, especially those minted prior to 1933, are the most popular and lucrative of all the rare coin categories for collectors to consider. The most sought after rare coins fall into 5 major categories:
- U.S. gold coins
- Morgan and Peace Silver Dollars
- Commemoratives
- 19th Century Type Coins
- 20th Century Type Coins
As you look to add to your rare coin investment, it pays to diversify – but in a smart fashion. According to the Professional Coin Grading Service (PCGS) and Numismatic Guaranty Corporation (NGC), coin issues with the fewest coins in existence are the scarcest. Scarcity creates ongoing demand and keeps coin values high regardless of economic conditions.
Is there a coin that you’ve always wanted to acquire, but haven’t been able to locate? Call us. We work with clients to locate specific coins and can help you on your journey.
Work with a trusted partner. Blanchard and Company, Inc. is the largest and most respected retailer of precious metals and American rare coins in the United States, serving more than 425,000 people with expert consultation and assistance in the acquisition of numismatic rarities and gold, silver and platinum bullion. Since 2005, Blanchard has had sales of $2.5 billion. Blanchard and its predecessor companies have called the New Orleans area home for more than 35 years.
How to Think Like a Gold Strategist (and Not a Researcher)
Posted onRecently, John Reade, the Chief Market Strategist and Head of Research at the World Gold Council offered interesting insights on how gold research differs from strategy. Reade clarified that researchers are simply using all available data to understand the current state of the market. Examples include an analysis of supply and demand, mining operations or an individual countries market share.
Strategist, however, take analysis and run with it. “A strategist tries to think about how these moving parts fit together and which elements will change going forward,” remarked Reade. A researcher is delving into the delicious steak dinner while the strategist is thinking about dessert.
The distinction is important because it underscores the inherent uncertainty behind market prognostication. Moreover, it elucidates the symbiosis between the two roles. Research has little value without the ability to synthesize the findings. At the same time, a strategist is only as good as their basis of research. Of course, more research is not necessarily the answer.
“What I look at now is quite different from what I looked at 20 years ago, and different again from 10 and five years ago,” Reade continues. To effectively leverage the power of research a strategist need to become adept at distilling what matters from the “static.” Author and statistician Nate Silver explored this topic in depth with his New York Times best-selling book The Signal and the Noise.
In his book Silver takes issue with assumptions that rely too heavily on the clean, sterilized conditions of models that fail to factor for the differing levels of importance among the data used. That is, a strategist must understand what set of characteristics are more important among the group. Knowing where the signal lies reveals what data points can be safely muted. Yet, to find the needle you need the entire haystack. Therefore, greater historical data offers the promise of more needles.
Reade’s comments seem to echo Silver’s devotion to using a substantial set of measurements for isolating more accurate predictions. “This is another way in which strategy is different from research: the frequency of observations is higher, ideally in real time,” explains Reade. In following this practice, Reade outlines his data pools explaining that he looks at data from four key areas. Reade follows purchase levels, interest rates, macro-economic data and commodities like oil and even other precious metals.
Of course, while his process is enlightening, most of us simply want to know what the picture will be when all the puzzle pieces are together. After citing that long-term, real interest rates are low and that geopolitical risk is high Reade asserts that this “combined with concerns about the global economy will, in my view, likely see investors interested in gold.”
Being a good strategist starts with being a good researcher. Yet, a solid bank of data is only the beginning. The real trick is pulling what is germane to your question from the heap of otherwise unimportant, unintelligible “noise.”
Be a researcher first, then a strategist and finally an investor.
Markets Rip to New All-Time Highs
Posted onFor what has occurred dozens of times so far in 2017, the stock market made another all-time high last week. Emini S&P 500 futures traded as high as $2,461.25 on Friday, with Mini Dow Jones Industrial Average futures making a fresh high of $21,628.
Markets seemed to love Fed Chair Janet Yellen’s dovish testimony last week that interest rate hikes might actually come slower than previously anticipated. This is partially due to the Fed interpreting retail sales and consumer sentiment data that came in below analyst’s projections.
For last week, all three major indices closed largely higher, marking the second positive weekly close in a row. Although the Nasdaq 100 did not make a new all-time high last week, it has almost fully recovered from the infamous and mysterious tech sell-off a few weeks ago.
Interestingly enough, the financial sector was the only declining sector in the S&P 500 on Friday. Despite JP Morgan (JPM) reporting positive Q2 earnings-per-share of $182, well above the projected consensus of $1.59, bank stocks, as a whole, didn’t exactly rally on the bullish news. Other consumer banking giants, like Wells Fargo (WFC) and Citigroup (C), strangely declined on upbeat earnings.
The energy sector contributed to much of last week’s gains in the overall stock market, as crude oil futures for August delivery were up more than 5% for the week. Reports of a possible setback in Nigerian crude supplies coupled with a recent forecast from the US Energy Information Administration calling for higher oil demand in 2017 drove prices noticeably higher.
Meanwhile, gold prices settled at the highest level in a month as the possibility of future interest rate hikes dwindled due to the aforementioned softer-than-expected economic data. Gold futures for August delivery climbed as much as $10.70, or 0.88% on Friday and ultimately settled at $1,227.50 an ounce.
Suffice it to say that economic data ruled the markets last week, as gold, crude oil, and stocks were all positively influenced.
Much of the buzz last week on Wall Street seemed to be focused on the CEO of JP Morgan, Jamie Dimon, and his unusual and expletive diatribe regarding the lack of growth in America when compared to other countries. During the earnings conference call for JPM, Dimon stated his frustration for US economic growth policies as a whole.
“I was just in France. I was recently in Argentina. I was in Israel. I was in Ireland. We met with the Prime Minister of India and China. It’s amazing to me that every single one of those countries understands that practical policies that promote business and growth is good for the average citizens of those countries for jobs and wages,” Dimon said to analysts and investors on the conference call.
He noted how growth policies in the US are not a republican or democratic issue. Rather, he noted how infrastructure and regulatory reform are the key to providing the much needed jolt to the US economy that would likely spur more growth in the stock market.
Later on this week, there is a Bank of Japan announcement on Wednesday, a European Central Bank announcement on Thursday, and a smorgasbord of earnings announcements as earnings season is officially in full swing. Another banking giant, Bank of America (BAC), is reporting earnings later this week and the current at-the-money option straddle is anticipating price movement in the stock, up or down, of 3.4%. Similarly, Johnson & Johnson (JNJ) is priced for a 2.4% move up or down. Both stocks are large components in the S&P 500.
Blanchard has successfully helped over 450,000 clients invest wisely in precious metals and rare coins throughout all of the ups and downs in the market. As always, our team of experts are here to help you make the right decisions and capitalize on opportunities in the precious metals market. Call us today at 800-880-4653.
Future Shock, All Over Again
Posted onWriting in 1970, author Alvin Toffler remarked that “People of the future may suffer not from an absence of choice but from a paralyzing surfeit of it. They may turn out to be victims of that peculiarity super-industrial dilemma: overchoice.” His book became a modern classic. Future Shock warned readers of all the problems that occur when modernity outpaces our ability to adapt to changing times.
Now, decades later, his words ring true. The timelessness of gold has come head to head with the technological innovation of fintech solutions. This phenomenon has left some questioning how gold fits into the emerging world of digitized currencies like bitcoin.
Recently, The World Gold Council, released a report examining the future of gold amid the breakneck speed of blockchain technology. Interestingly, some experts believe that gold and the popular alternative bitcoin can happily coexist. “On 2nd March 2017, the price of BitCoin surpassed the price of an ounce of gold for the first time. For those who worry that gold has found a digital rival, it hasn’t – this is merely a nominal coincidence,” remarks The World Gold Council. They continue, “But gold also has an advantage – the market is deep (US$8 trillion) and it enjoys an unrivaled sense of security.”
This sentiment underpins an evolving perspective on gold. The emerging role of technology in our financial system only works to reaffirm the power of gold. It was the original form of universally accepted currency and still is. The authors of the piece from The World Gold Council remind readers that “Roughly US$250 billion changes hands each day through the gold market.” Moreover, the advent of technological developments may actually boost gold’s popularity.
Some have come to assert that people can leverage blockchain technology to hold a balance in true, tangible gold while still spending the asset. What’s more, this development would work to increase the liquidity of gold. With greater liquidity gold would become an even more agreeable way to invest cash and retain the value of one’s holdings. For these reasons experts are beginning to see the likelihood of a resurgence of gold increase.
Toffler was right about many things. However, the burden of choice may soon dissipate. Technology enthusiasts and gold holders just might have everything they want in one convenient choice.
Too often we assume that the new replaces the old. While, in some cases this is true, it’s far more common that the new reinvigorates the old. Or, as some have succinctly put it “everything new is old.”
Technology has found more efficient ways to put gold in the hands of investors. Meanwhile, unlike ETF solutions, new technology gives people a true claim to the asset rather than just a glorified promissory note. As this trend continues investors will see faster ways to make gold part of their holding all while knowing they can access it at any time and convert its growth into true spending power. As the authors explain, “In an indebted world, there are plenty of reasons why people should want to carry electronic gold in their pockets – and technology is allowing them to do so in a seamless way.”
Gold Tumbles to 4-Month Low on Strong Jobs Report
Posted onThe gold market took a dive last week, hitting a fresh four-month low following a stronger-than-expected U.S. jobs report. Gold touched a low at $1,207.00 per ounce.
The Labor Department said 222,000 new jobs were created in June, which beat economist’s expectations of a 174,000 gain. That follows strong labor reports in May and April and signals robust job growth.
The gold market has turned down since early June in a summer slide. That offers long-term investors a better entry purchase point. Short-term gold traders are exiting positions amid continuing signs the Federal Reserve will continue its plan to increase interest rates this year and next. Also, a lack of significant geopolitical turmoil or economic distress has removed some safe-haven demand from the gold market this summer.
While gold bears control the short-term trend, longer-term investors view the price dip as essentially offering up gold and silver “on sale.” The gold market is approaching a technical chart support zone at the $1,200.00/$1,190.00 area which could act as a hook to stabilize the market and act as an attractive entry point for investors with a long-term time horizon.
Gazing Into the Crystal Ball
Wall Street anticipates one more interest rate hike this year – at the December meeting.
The strong jobs report last week also gives the Federal Reserve an added kick toward beginning its balance sheet reduction, sooner rather than later. There are four upcoming Fed meetings in 2017.
Remaining 2017 FED Meetings
Date Market Expectations of Rate Hike*
July 25-26 3.1%
Sept 19-20** 18.4%
Oct 31-Nov 1 19.7%
Dec. 12-13* 50.6%
(* per CME FedWatch data tool, **meeting with a press conference)
$1400 Gold – All Bulled Up
Despite the modest Fed interest rate increases expected ahead, Wall Street firms remain bullish on the prospects for gold ahead. In a new research report published at the beginning of July, BofA Merrill Lynch Global Research forecasts gold at $1,400 an ounce in the first quarter 2018 and silver to rise to $20.71 per ounce in the same quarter.
“We believe markets are somewhat too complacent and investors should build positions in volatility-exposed instruments. Broadly, we believe that there are various alternatives to protect portfolios against increasing policy risk and a rapid reversal in investor positioning. Investors could opt to increase their gold allocations,” according to the BofA Merrill Lynch Global Research report.
The Bottom Line
Current levels in gold and silver offer long-term investors an attractive buying opportunity. Over the past 40 years, Blanchard has helped clients invest in American numismatic rarities and gold, silver, platinum, and palladium bullion. Contact us at 1-800- 880-4653.
The Stock Market is Doing Something it Hasn’t Done in 14 Years
Posted onLast week was another interesting week for markets in the US, to say the least. With shortened trading due to the Independence Day, volatility and trading activity were both expected to be lighter than normal.
For the most part, the holiday trading activity expectation was indeed true, until Thursday rolled around. Stocks took a violent beating on Thursday with the S&P 500 leading declines for the day, followed by the Dow Jones Industrial Average and Nasdaq 100. A whopping 27 out of 30 total companies in the DJIA closed in the red on Thursday leaving the index with a triple digit loss of 158.13 points, or 0.70%. The Dow’s decline, however, was overshadowed by the S&P 500’s stark loss of nearly 1% to close at $2,409.75.
The declines came on the heels of a mix of geopolitical worries, continued tech selling, and weaker than expected economic data. On the geopolitical front, news agencies reported renewed missile test launches from North Korea that seemed to cause a “risk off” trade among investors.
For economic data, ADP payroll data also contributed to the declines on Thursday, as the actual number of 158,000 new jobs was well short of the expected 180,000. In addition to the North Korean news, this seemed to be enough to cause investors to taper their long positions.
However, despite Thursday’s harsh declines, all three indices posted a strong rally on Friday as the US Department of Labor reported 222,000 new jobs for the month of June, completely beating most of the expectations on Wall Street.
The stellar jobs report was not helpful to the gold market, however, as the data solidified the path for the Fed’s current interest rate hike agenda. The yellow metal was off more than 1% upon release of the monthly jobs data, yet it still managed to hold its ground well above $1,200 per troy ounce.
Although employment data was surprising last week, the real phenomenon that had traders scratching their heads was the historic lack of correlation between the three benchmark indices.
For the first time since 2003, the correlation between the DJIA and the S&P 500 slumped to a low of 0.4655. A correlation of 1.00 is perfectly correlated and means two assets move entirely in sync, and a correlation level of 0.00 is entirely not correlated and implies two assets move independently. The fifteen-year average correlation for the two indices is 0.9557, which is almost perfectly in synch.
Basically, for the past 20 trading days, the Dow and the S&P have been trading almost entirely in their own worlds, only moving in the same direction less than half of the time. So what’s driving this rare lack of correlation in the markets?
“The disconnect is probably due to the tech stocks, because some of the biggest companies are tech stocks but not many of them are in the Dow Jones,” said Randy Frederick, managing director of trading and derivatives at Charles Schwab. This explanation makes sense, but it is not particularly southing news for investors. With inexplicable sector-wide sell-offs and low correlations in the most well-known and liquid market in the world, many investors don’t know what to expect next. Because of this, safe haven assets, like volatility and gold, are looking more attractive day by day.
Open interest data confirms the unknown buyer of $3.8 million worth of VIX call options, as mentioned in previous articles, has yet to cash out on the trade despite several large spikes in volatility. Could more unexpected and unusual market moves be lurking around the corner? Only time will tell.
As if the 14-year slump in broad market index correlation didn’t provide enough mystery for the week, silver futures suffered an extremely bizarre “flash crash” during late trading on Thursday. Silver futures for September delivery cratered more than 10% from $16.13 per troy ounce to $14.34 in only a few short minutes. With no explanation for the plunge other than an “accidental trade,” the monumental decline was instantaneously reversed and silver was back near $15.80 per ounce. All of this took place in less than five minutes.
The flash crash in silver is the perfect example why owning physical precious metals is demonstrably safer than owning precious metals electronically. If an investor had a -10% stop-loss for a long silver position, Thursday’s flash crash would have instantly caused an irrecoverable 10% loss.
Between flash crashes, nuclear missile tests abroad, and a historic level of low correlation in the largest equity market in the world, it’s safe to say the past few weeks have been home to some of the most unusual trading activity in the past decade.
For over 40 years, Blanchard has helped over 450,000 clients invest wisely in precious metals and rare coins throughout some of the most bizarre market conditions imaginable. As always, our team of experts are here to help you navigate the markets and capitalize on opportunities amidst the chaos. Call us today at 800-880-4653.
The Science behind Money and Happiness
Posted onIt’s the age-old question. Can money buy happiness? While conventional wisdom says no, researchers are upending traditional thinking here.
It turns out how you spend your money can impact your happiness levels, according to research from Harvard Business school professor Michael Norton. People who spend money on experiences – not things – brought higher levels of happiness.
Adding in another layer of research, the further that people think and plan ahead for their future, the higher levels of power and happiness they feel in their lives, according to a Morningstar report by behavioral economist Sarah Newcomb Ph.D.
The key takeaway: Creating economic stability now and in the future helps people achieve higher levels of emotional well-being.
“According to the American Psychological Association, year over year, money is the number one source of stress in U.S. households, regardless of the economic climate. Given that stress leads to health problems, lost productivity, relationship problems, and an overall loss in quality of life, it’s clear that the emotional aspects of a person’s financial life are a critical part of their overall financial health,” the Morningstar report said.
Here are key findings from the Morningstar report:
- Time is money – The further ahead a person thinks in time and the clearer their picture of the future, the better their behavior in terms of cash, credit, and savings management. This effect was significant even when controlling for income, age, education, and gender.
- Power is happiness – Across all income levels, people who believe they create their own financial destiny experience, on average, display more positive emotions with respect to money than their peers who believe they do not have power in their financial lives. The effect of perceived power on emotional wellbeing was greater than that of income, age, education, and gender.
Focus On What You Can Control
When it comes to finances and investments there are aspects that you can control and variables that you cannot control. Focus on what you can control. Here are some examples of factors you can control:
- The $ amount that you save each month.
- The types of assets that you buy.
- How well you diversify your portfolio.
Financial advisers suggest saving and investing different percentages of your income. Some may point to 5%, while others may say saving 20% of your income is a better target. When it comes to building long-term wealth and saving for retirement, you probably won’t run into the problem of saving too much.
Take the time now to think about your long-term financial goals. Write them down in detail. Then, develop a plan to help you get there. There are investors who purchase a set amount of gold and silver assets each month, as part of a dollar-cost-averaging plan. Just as you might divert a certain amount of your income to the stock market each month, diversify your portfolio with investments into gold and silver.
Gold and silver are proven portfolio diversifiers and also act as a vehicle for long-term wealth building. Boost your happiness levels now and in the future by taking control of your financial life and building an investment plan. A Blanchard portfolio manager would be happy to work with you to discuss your long-term goals, your level of risk tolerance and help you create a plan to move your closer toward your dreams.
Bizarre Week for Markets
Posted onThe S&P 500 and Nasdaq 100 just had one of the most volatile weeks of 2017. To recap, stocks opened up largely higher on Monday of last week before inexplicably declining to finish out the day. Tech shares sold off dramatically, for the second time, on Tuesday and dragged many large-cap stocks along for the ride.
Investors evidently took advantage of Tuesday’s sell-off and bought the dip on Wednesday. The S&P 500 had its third best day of 2017 on Wednesday as it rallied almost 1% while the Nadsaq 100 was up nearly 1.5%. History tells us that when stocks have such a strong rally, it’s not uncommon to see the rally extend for several more days. This is especially the case when stocks close at the high of the day, as they did on Wednesday.
After the market closed on Wednesday, the Federal Reserve announced that every major bank, except for Capital One, passed their “stress test” and had more than enough cash on hand to withstand adverse economic conditions. As a result, banks rushed to announce shareholder buybacks and increased dividends.
Bank stocks rallied tremendously after hours and pushed the S&P 500 and Dow Jones Industrial Average up around 25 basis points (0.25%). The rally held right up until Thursday morning when the Nasdaq began declining sharply due to weakness in tech stocks. The selling didn’t stop and S&P 500 futures plummeted from $2,445.00 to $2,402.75 before rebounding 20 points to close out the day.
However, the real focus was on volatility. Because of the sharp and relentless decline in stocks on Thursday, the VIX soared over 40% and peaked at 15.16. The mysterious volatility buyer mentioned in last week’s article, who purchased over $3 million worth of VIX premium, saw almost a three-fold profit on the risky trade.
Needless to say, market participants were scrambling on Thursday. Although the Nasdaq was off more than 2.5%, the S&P didn’t even come close pushing past the 2% mark.
“When you get extended rallies, the kind we saw in technology shares, prices tend to come down a lot faster. Though, when markets drop 1%, it’s hardly a selloff,” said Joe Saluzzi , partner, co-head of equity trading at Themis Trading.
“It is still perplexing to see the stock market climb to highs when the bond market is signaling a slowdown. One of these markets is not right,” Saluzzi went on to say.
Regardless of where market participants think the market will go in the coming months, the dynamic has undeniably changed. For the first time since the November 8th election, sell-offs are occurring more frequently and with far more velocity. Enough velocity, in fact, to get a spike in the VIX of 40%, which is not trivial.
Unusual market moves also occurred in the precious metals realm last week. Early Monday morning, when liquidity is typically less than during normal market hours, a massive order to sell 1.8 million ounces of gold took prices down nearly $20. Many brokers and CTAs chalked the order up as a “fat finger” trade, which is trader jargon for an accidental trade. Gold recovered relatively quickly after the massive order but finished out the week with a bit of a whimper beneath the key level of $1,250 per ounce.
Trading was shortened this week by the Independence Day holiday yesterday, so volume and activity is expected to be lighter than normal for the remainder of the week. Liquidity, or the number of people willing to buy and sell securities at specific prices, will also be lighter than normal. Judging by last week’s activity, it wouldn’t be unusual to expect more volatility in the coming weeks with less liquidity due to summertime.
