I decided to not write a note last week because I feared being repetitious when it came to this week's missive in terms of my cautious stance. With the indices down 9 days in a row, the longest losing streak in nearly 36 years, that note would have elevated my forecasting reputation to a level that would elicit envy from Nostradamus.
Of course I wish that had been the reason for last Friday's omission. In reality, it was mostly that I was jammed, but also that my views had not changed as had very little in the markets. And, as I write this, it seems like Groundhog Day yet again much like the definitional redundancy of this sentence. But that is the headline as quants and indexers continue to do what they do, the surface revealing slight tremors in a controlled declined while underneath perhaps the tectonic plates are shifting.
More than three-quarters of the S&P 500 have taken their turn at the podium revealing bottom line results that have been broadly stronger than expectations which had, somewhat unusually, been ratcheted higher into reporting season although the number of revenue beats were below recent quarterly trends. Bonds have been anything but a safe haven, although the fall has been less linear, with sovereign yields rising around the globe as central bankers backtrack from policies that do more harm than good and market denizens realize that bubbles are much like weight gain, both only truly identifiable from a look at what is behind you.
One may rightly ask: If Fed Funds Futures are forecasting a near 80 percent chance of a rate hike in December, manifested by a back-up in rates indicating such is already discounted in the market, economic data has continued to strengthen, including today's jobs report, earnings have largely surprised to the upside, then why have the indices acted so poorly? One could point to the historically high correlation with energy and the more than 10 percent decline in crude prices, the drop initiated by those ill-advised bulls going long on the hope that for once, just once, OPEC would agree on production cuts at their November confab. Well, it didn't take the meeting for this ludicrous notion to fall apart as Iran and Iraq said it won't happen. Concurrent with this we saw the largest inventory build on record and the cattle call for $60 oil quickly reversed as oil heads to $40. But the quants seemed to have rewritten that code. You should have checked (D), none of the above for what hit the market as to the choices offered above for all that matters, both here and in Europe where they have experienced equally positive earnings results, is the U.S. election.