[Market Madness] Edition 0062
Sunday Recap
Resting up for Monday
Well folks, I hope you all enjoyed a relaxing weekend. The weather where I am is very nice and I got to enjoy some time outside before my allergies took me down for the count.
Anyway, things appear quiet on the financial front this weekend, with a lot of anticipation riding on how the futures open here in the U.S. this evening, signalling how Monday will likely go. I found a good WSJ article that covers off on some of the madness we saw towards the end of last week and I’ll get into that article here.
Did you miss yesterdays’s piece? No worries! Get it right here and catch up on the madness.
Fundamentals
Friday Close:
Dow Jones Industrial Avg: +1.90%
S&P 500: +1.31%
NASDAQ: +1.01%
US 10 YR: 0.698% | 99 3 / 32
Crude OIL: $36.40
Market Madness Portfolio: +1.03%
COVID 19 Global Cases: 7,976,162 (updated Sunday)
Indices Overseas:
FTSE 100: +0.47%
Nikkei: -0.75%
Hang Seng: -0.73%
Let’s get volatile
Volatility has always been something really interesting to me. When I found this WSJ article, I not only wanted to learn myself, but also share with you all some of the interesting market situations with volatility. As we have discussed in the past, the main focus for volatility measure in the financial markets is the CBOE Volatility Index, or simply, the VIX. Many also refer to the VIX as the ‘fear gauge,’ as spikes in volatility typically represent investor’s fear in the markets.
As we can see, there are times when volatility ‘spikes’ that come with global financial or economic events. We do not often see spikes like the one in May. In the time since its inception, the VIX has gone from a measurement to a trade in itself through exchange traded funds, ETFs. What once measured volatility in markets could now be traded and therefore is volatile itself.
The article is really interesting, and I don’t want to just to a rehash of what was said there (so I recommend reading that article as well). For the most part, we have not seen such large volatility spikes since the crash in 2008. Since then, those exchange funds mentioned have been implemented for traders and investors to try and take advantage of volatility movements in the markets. You can find firms that have implemented volatility strategies early on in January, betting that the coronavirus was going to be worse than was anticipated at that time. Those investments hit HUGE.
For me, the biggest takeaway is how uncertain things can be and how conditions can change on a dime. The markets were pumping prior to Thursday’s major selloff. The underlying concerns with respect to COVID 19’s resurgence was always there, but was chosen to be ignored by investors and the market at large. It appeared to be the Fed’s confirmation on Wednesday of a gloomy near-term outlook was the straw that broke the camel’s back. After that, we saw many investors move out of risk and into safety, so much so that we almost saw an above 1% U.S. 10-Year Treasury.
What is really interesting is how many of the big finance news outlets are following trends in Robinhood, the commission-free mobile trading platform. We have seen a lot of users join the service during the lock down conditions, appearing to be a supplement to casino gambling. News late last week surfaced about Robinhood users being a major player in Hertz’s major stock bounce following its bankruptcy declaration. We also heard word of Robhinhood users getting the short end of the stick on Thursday’s selloff.
The major selloff took the image of a long squeeze (a situation in which a rapidly declining market forces investors to sell their positions to cut off the potential for increased future losses). It may also have been the market’s reality check based on the increased amount of gloomy economic forecasts, suggesting that the recovery effort may be going much too fast compared to the rising number of COVID 19 cases across the globe and here in the states. Big players in Capitol Hill are still grappling over additional stimulus packages and what to do in a ‘second wave.’ Treasury Secretary Mnuchin has already come out to say that the economy cannot be shut down again, especially after seeing how much damage was done the first time. While that is wishful thinking, it may come to a point where there is simply no other option. Cases are continuing upwards at a fast pace (nearly 300,000 new cases globally since Friday) and there no clear signs of a vaccine in sight. Things are in the works, but finding a ‘cure’ can only be sped up so much. Until then, the masks and social distancing are going to be a must to help mitigate further spreading.
It will be really interesting to see where the markets go this week, and the futures’ open this evening will be a telling first sign of what direction we’re going to start the week off in. As always, I’ll be here watching and writing, and I’ll recap what happens for you all tomorrow.
Quick Takes
Apple’s much anticipated WWDC conference will be entirely online this year. (via CNBC)
Donnie addresses West Point graduates. (via CNBC)
AstraZeneca to supply Europe with 400 million COVID 19 vaccine doses. (via Reuters)
Larry Kudlow, director of U.S. national economic council, says that additional unemployment boost will end as planned on July 31. (via Bloomberg)
Reader’s Corner
The reader enjoyed a much needed relaxing weekend and will be back tomorrow for more exciting banter.
Behind the Madness
Thank you again for checking in.
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