A Volatile Day

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By: Kent Engelke | Capitol Securities

As widely noted many hedge funds and quantitative investors are on the sidelines because of market volatility. This pessimism has also spread to ETF investors for they have yanked about $4 billion from funds thus far this year. Bloomberg writes that this is unusual given that asset flows for the group have not moved in opposition to the market in more than a decade.

Can we suggest that geopolitical issues are finally taking their toll upon this huge cadre of investors?

Speaking of politics, what words can I use to describe Washington? Life is indeed stranger than fiction. Regardless of one’s political views, the dysfunctionalism in Washington is horrific and is perhaps now beginning to impact investor psychology.

Bloomberg writes that since the beginning of the year approximately 90% of the volume is the result of algorithmic and technology-based trading; trading based upon momentum and capitalization, not any macroeconomic or geopolitical thought. Wow!

Speaking of volatility, yesterday was again volatile with all averages opening higher by 1%, because of earnings. Mid-day the indices declined over 1% on growth fears and the 50-day moving average for the S & P 500 was breached as selling accelerated. However, just as quickly as shares fell, the S & P rallied. At the close, the NASDAQ was flat, the S & P 500 up 0.22% and the Dow up about 0.70%.

Commenting about the annual economic forum in Davos, it appears all participants are defending the global order. This should not be a surprise given the billions spent and legislation passed to ensure perpetuity.  However, democracy is intervening. Economic nationalism is surging in most western democracies, democracies that represent about 70% of global production.  President Trump is a symptom of today’s environment, not the cause.

The cause in my view is income inequality and the heavy burden of the bureaucratic state that believes their views are omnipotent and omniscient to that of their constituents.

Wow! We are living in tectonic times!

What will happen today?

Last night the foreign markets were mixed. London was down 0.09%, Paris was up 0.84% and Frankfurt was up 0.55%. China was up 0.42%, Japan was down 0.09% and Hang Sang was up 0.42%.

The Dow should open flat ahead of downbeat comments from Davos where the world’s elite are gathered defending the current economic order, an order that appears in global disarray. The ultimate reality show in Washington is continuing. And then there are earnings and trade, the view of each radically changes in a five-word tweet. The 10-year is up 5/32 to yield 2.73%.

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