By: Kent Engelke | Capitol Securities
If extreme environments dictate a transition, a transition should be at hand. According to JP Morgan only 10% of stock trading is now done by fundamental analysis focusing upon the current and anticipated geopolitical and macroeconomic environment. In other words, there is no fundamental analysis. Passive and quantitative strategies dominate investing decisions.
JP Morgan also stated 52% of May’s equity volume was the result of high frequency trading (HFTs). The Bank also stated an incredible 98% of May’s Treasury volume was the result of HFTs and passive/quantitative trading.
Wow! Skynet has taken over the markets!
In my view, today’s environment has created incredible risks and incredible opportunities. As noted in the introductory sentence, extremes typically suggest a transition can occur at any moment.
Regarding the FOMC meeting, the outcome was largely as anticipated with the overnight rate increased by 0.25%. There was little initial market reaction. However by the close, led by the largest capitalized momentum stocks, the NASDAQ fell about 0.50%. The Dow was nominally higher.
Commenting briefly upon yesterday’s shooting in Washington, I rhetorically ask “do the times define the leaders or do the leaders define the times?” The vitriol, the animosity, the identity politics, the absence of truth on both sides of the political aisle has reached a level, a rancor that has not been experienced in a generation.
Is this the result of the proverbial generational change? I think I can write the vast majority of society is tired of Washington’s status quo. Americans know the difference between right and wrong, acknowledging that life is not always fair. Was yesterday the apex of today’s malevolence?
I hope so.
Last night the foreign markets were down. London was down 1.15%, Paris was down 1.20% and Frankfurt was down 1.18%. China was up 0.06%, Japan was down 0.25% and Hang Sang wasdown 1.20%.
The Dow should open moderately lower on what is now perceived as a a more hawkish tone from the Federal Reserve. The 10-year is off 8/32 to yield 2.16%.