Traders have officially stopped trying to rationalize this market.
And that’s probably a good thing when it comes to maintaining some semblance of sanity.
You can’t explain these levels in equities or credit with anything that even approximates an argument about fundamentals.
Any fundamental metric you care to consult on equity and credit suggests that this has gone beyond euphoria. It’s sheer lunacy. As I’ve noted on any number of occasions, if you really want to get a sense of how insane this is, you’ll look not at the Dow, but at IG and HY spreads. The compression – not to mention resiliency – is astounding.
Below, find the latest from former FX trader Richard Breslow, who has apparently given up completely when it comes to analyzing things.
I Just Don’t Really Care Why Markets Are Moving
There’s been a lot of discussion about just what the actual catalysts that have been driving markets are. Moves that, let’s face it, have confounded many a market forecaster and political pundit. It’s an interesting and important question: just not all that helpful right now.
- It matters because where we go in the medium and long term will be determined by the answer. What we should be watching for will be affected. Which if-then questions do we need to pose? But the reality is markets are moving, and fast. For now it’s momentum and technicals that you’d better deal with if you want to thrive, or even, survive
- We can wait to apportion credit or blame until we get a breather. It’s never more true than when legacies are involved that, “Success has many fathers, but failure is an orphan”
- Is it the foundations laid by years of steadfast central bank policies? Is it possible that natural economic cycles are finally re-emerging after the catastrophic financial crisis? Laying waste as they go to the secular stagnation theories that fit their time, but not the ultimate order of things. Are animal spirits finally rising from their vegetative state and consumer demand will drive everything forward? Could it possibly even have something to do with potential Trump policies?
- Each one very possible. Probably a combination of all of the above. Just remember, we won’t really know the answer until after the fact, when the money will already have been made or lost
- We can assume that the market has now internalized a March rate hike. It really would be something if Chair Yellen made saps of the majority of the Committee’s members. The dollar and 10-year Treasury yields have been pricing this in and risen to levels threatening significant breaks higher. They look great, but without a lot of room to spare
- What you want to watch now is the front end of the yield curve. How two- and five-year yields behave from here will be an absolutely key driver. They’ll tell you whether investors are bringing already priced hikes forward or increasing the number expected. Looking at the charts, you can be cautiously optimistic that they’re still pointing higher. But they are why data, events, proposals and speeches will continue to matter