Equities fluctuated while the dollar extended a four year high and oil led a drop in commodities as the economic data suggested a possible delay in a change in monetary policy and Russia was considering capital controls to stem that country’s exodus of funds.
Commenting about third quarter performance, the surprise was the strongest quarterly performance of the dollar in six years, commodities retreating the most since 2008, sovereign debt outperforming corporate debt for the first time in three years, global stocks declining the most since 2012 and the large bifurcation between the NASDAQ 100 and the Russell 2000.
Wow! There are a lot of surprises as few, including me, suggested few if any of the above would occur.
Some would blame the above on a possible change in US monetary policy, others will blame the geopolitical environment while others will blame anemic volume where trading is dictated by the proverbial machines.
My simplistic observation is that there is a gargantuan amount of monies gravitating to one sector to another driving prices up like locusts eating vegetation and then quickly exiting the sector before herding into another. The hapless Russell 2000 is all but forgotten where selling pressure is not great; there is an absence of buyers as most funds are chasing performance and the next hot mega capitalized sector.
What will happen today, the first day of the fourth quarter? What will be this quarter’s surprises?
Most know September is historically the weakest month and seasonal strength commences mid-October. Yes there have been several climatic events that have occurred in October but optimism begins rising around mid-month that “next year will be better.”
Speaking of optimism, the mid-terms are 34 days away. If history is of any precedence, all races will narrow, a narrowing that will permit endless hours of talking head bloviating.
Many are suggesting a change in the Senate and a nominal increase for Republicans in the House. I place the odds at 60% that November 4 could become an election of historical significance given the anger and animosity most have towards Washington.
How will such a surprise impact the markets? As noted a gazillion times, cash balances are huge. Monetary velocity is at record lows. Both are indicators of confidence.
I can argue if there is large change in Washington the markets will advance. Yes Virginia, markets historically perform better under a Democratic Congress than Republican, but today could be different.
Survey after survey is suggesting the greatest hindrance to growth is an obtrusive government. What would happen to confidence if there was a self-induced moratorium on passing new regulations?
I can argue the proverbial spring is tightly wound and if genuine leadership emerges the “animal spirits” can be released. Wishful thinking? Who correctly suggested third quarter’s performance?
Today vehicle sales, the ISM and ADP Private Sector Employment survey are released. How will this data be interpreted?
Last night the foreign markets were down. London was down 0.54%, Paris down 0.43% and Frankfurt up 0.13%. Japan was down 0.56%and Hang Seng down 1.28%.
The Dow should open quietly lower ahead of theism and ADP data. The 10-year is up 1/32 to yield 2.48%.