For a period, when the Fed was considering tapering its asset purchases, it seemed like every day was either a "risk on" day, where stocks, higher-yielding currencies and commodities rallied in sync, or a "risk off" day, where bonds, gold, the dollar and the Japanese yen led the way.
So what about these charts? We have an interesting divergence working. The Nasdaq hit a new high after the Fed while the Dow and S&P 500 did not. The Nasdaq made a new high by 82 cents. But as you can see, the SPX is responding to 620 hours of this move off the November low. This is also the 89-90-day window off that November low and it’s on the front end of the seasonal change point. It’s very possible a change has already started. If the stock market does not correct given these important cycle points clustered with the Investors Intelligence report we are really dealing with a runaway train.
We realize a lot of the money given to the banks in the early Barack Obama years never made it to Main Street. So the banks and Fed tinkering helped drive the stock market to the stratosphere. One has to realize as we enter the back end of the one year anniversary to the February 2016 bottom the stock market has accomplished all of this without the kind of public participation we’ve seen in the past.
I told you a week ago the markets were at the 618 day window from the May 2015 high in the SPX and it was also the 360 day high from the August 2015 low for whoever bottomed there which also turned out to be the NDX and Dow. If markets were in a sour mood, people seemed to be upset about a rumor circulating the tax cut wouldn’t come until 2018. Markets do not respond to travel bans even if I suspend the socionomic discussion for a minute.
Wall Street looked set to open little changed on Friday as uncertainty about the outcome of the U.S. presidential election continued to weigh on investors' minds. Data showing a strong pace of hiring in October had little impact on stock index futures ahead of the opening.
World stocks, the dollar and oil fell on Wednesday, while safe-haven assets such as gold and the Swiss franc rose as investors were rattled by signs the U.S. presidential race was tightening just days before the vote.
The Federal Reserve and Bank of Japan's actions last week have given a second wind to an alternative investment strategy that relies on cheap money and low market volatility to produce outsized returns. Risk parity trades, which involve borrowing to take long positions in both stocks and bonds, have been favored by some big hedge funds and other institutional investors starved for yield by eight years of record low global interest rates.
The jobs report came in with a good headline number at 255,000. Wall Street went ballistic and even noticed a twinge of euphoria Friday morning. Hold the phone, I’m concerned it isn’t what it seems. You’ve seen me flat out say from time to time I think some fundamental number is a complete fabrication. I think this number is on the level. But I also think they got there by the most creative levels of accounting gimmickry.