Amongst all the “sky fell already” comments I read ubiquitously, I wondered is today a welcome timeout for reflection? Perhaps even thanks might be appropriate.
So in this short note we try to give some perspective on the “collapse”, and with it draw a deep breath on what might go right in the next few weeks.
Taking perspiration out of the perspective – stocks have really gone nowhere slowly this year.
This is a pretty typical headline, and actually quite calm compared to most.
But, as with all arguments that are based on statistics, it’s heavily dependent upon where you start from.
However, that’s one thing we don’t have to worry about this year – indeed it’s pretty hard for the “look skyfallers” to find periods which sound sufficiently awful to headline a twitter campaign.
Round and round in circles
The plain fact is that the major market indices like the SP500 have gone nowhere this year.
Let me demonstrate with some charts
This past week, and based on the time of writing, the index is down 40ish points !
Which translates to about -1.7%
For sure, relative to a month ago, that becomes a 100ish points, or about -4%
But looking a full 6 months back, it’s only 75ish points or about -3%
And year to date, we’re back to only -50points, and less than -2%
Finally, relative to a year ago, we’re actually up 50 points – about +2%
My point being, apart from the steep falls from the steep climb in the summer, we’ve wandered around levels we started from, about 12 months ago.
And to complete the point made above, that it all depends on where you start, it also depends upon where you end.
The close on Monday was about 2765, exactly where we started the year.
In other words, most of those comparisons would be flattish or insignificant, except the 12month comparison which would be even more positive.
We wrote about the vol-panic in February, suggesting that it was just a correction and that we’d see the highs again.
We also suggested that we wouldn’t go far this year, either.
We remain convinced markets are in a holding pattern while the dollar shortage and funding squeeze combines with geo-political uncertainty, while the Fed seems determined to get to somewhere like “neutral”, from which they could mount a reasonable rear-guard action if emergency easing were required.
The only market that should really have had a bad time this year was emerging, as we’d suggested, while others should have remained in (a more volatile for sure) holding pattern. Returns would likely be negative, but small enough to look like turkey prints in the snow.
It’s the end of the cycle as we know it.
This may be end of credit cycle/turning point stuff for sure.
Then again it may not be – there are plenty of examples in history of such markets, where the highs in broad stocks are resumed after a period of chopping and starting.
Whether this is one or other will be determined by events, the outcome of which no one can know for certain right now, IMHO.
But some details may be known soon. Yes POTUS/Xi matters.
So best sit back, in neutral, and await the news.
Oh and give thanks while your at it.