Waiting, wishing… Stocks closed higher yesterday after bouncing around throughout the session as all eyes are turned to Washington. Tough negotiations between Republicans, Democrats, and the Whitehouse are leaving companies… and investors in the lurch.
N O T E W O R T H Y
Healthy choices. Markets react… and adjust… rather quickly and quite efficiently. I write a lot about the importance of facts and numbers in determining the potential for success in investing. The very basis of my career in finance has its roots firmly in a numbers and quant-based algorithmic programing. For those of you that have been to my offices, you have witnessed my expansive collection of screens covered in charts, graphs, blinking numbers, R and Python IDEs (Integrated Development Environment), and spreadsheets… lots of spreadsheets. We use these tools to gather as much information as possible in order to give us some statistical edge over the masses. At the end of the day, however, the market, itself, is the ultimate arbiter of whether stocks go up or down. I write this now as the markets have been attempting to suss out the direction of the economy, post-elections. Sure there are many other factors affecting the markets these days, namely the pandemic, but the elections have now moved to the top of the list. By the time you are reading this, you have probably already heard that WHILE YOU SLEPT, the President announced that he had been infected with COVID-19. Let’s get the humanistic stuff out of the way first: let us hope for the President and First Lady’s speedy recovery back to health. Now on to the markets. There is no math to accurately predict what the results of the President’s infection will be. Sure, we can apply probabilities and determine likely outcomes. With access to massive amounts of cloud-based computing resources, we can run very large simulations. But guess what? The market is already doing its job. Traders will voice their opinions with their buy and sell buttons today, as they have been in the past weeks leading up to this latest bit of news.
Somewhere around the turn of the last century, a French mathematician first introduced the Efficient Market Hypothesis in his PhD thesis. I will spare you a long and boring read and summarize it for you here. The theory simply states that markets factor in all available information. The implication of the theory, if you agree with it, is that one cannot beat the market. In the early 1900’s, timely information was a luxury only enjoyed by insiders and the wealthy, who were able to trade on that information before it could be consumed by the masses. This condition continued throughout the century until cable TV launched its first 24-hour news channels and average investors were not limited to receiving their financial news in the morning paper. For the record, CNN launched in 1980. Then came the internet, AOL, and Yahoo Finance which further democratized information. Today, we are bombarded with information in a timely manner and from a multitude of sources. By the time I woke up this morning at 4:00 AM, my smartphone was loaded with news reports of the President’s condition. Before I had a chance to take my first sip of espresso, a colleague who is currently in Croatia, texted me a link to the news story. I also need to mention that markets are now virtually open almost 24 hours. In years past, traders were limited to market hours, dictated by exchanges. Today we have aftermarket, pre-market, and index futures. So, not only is information available to masses in a timely manner, traders can react quickly to the news. I can look at a chart of the S&P500 futures and see the exact minute when the news hit the tape which was followed by a quick selloff. I can also see another leg down at 5:00 AM when many traders in the US woke up to the news. Today's markets are, indeed, efficient. The session ahead will be a busy one. In addition to the news of the President’s health, we are due to receive important monthly employment information while Congressional leaders continue to attempt to hammer out a new stimulus package. There will be a raft of information for the market to process today, but don’t worry, it will do so, as it always has… with a great deal of efficiency.
THE MARKETS
Stocks traded up in yesterday’s session in a volatile session marked by on-again, off-again news of a potential agreement on a new stimulus package. The S&P500 rose by +0.53%, the Dow Jones Industrial Average climbed by +0.13%, the Russell 2000 Index advanced by +1.56%, and the Nasdaq Composite Index jumped by +1.42%. Bonds rose slightly as well and 10-year treasury yields gave up -1 basis point to 0.67%.
NXT UP
- Change in Nonfarm Payrolls (Sept) is expected to show an increase of 859k jobs, down from last month’s 1.271 million jobs increase.
- Unemployment Rate (Sept) may have dropped slightly to 8.2% from 8.4%.
- University of Michigan Sentiment (Sept) is expected to come in at 79.0, up slightly from the 78.9 prior estimate.
- Philadelphia Fed President Patrick Harker and Minneapolis Fed President Neel Kashkari will both speak today.
- Next week, we will get services PMIs, JOTS Job Openings, and minutes from the Fed’s last FOMC meeting. Check back on Monday for calendars and details.