Ok, this day has officially ground to a halt – presumably due to everyone obsessing over the eclipse and a notable lack of Trump tweets.
Generally speaking, everyone seems to be frozen in time ahead of Jackson Hole, despite the fact that, as detailed in our week ahead preview, event risk around the symposium has diminished this month as the ECB has gone out of its way to ensure jittery investors that Draghi isn’t going to say something stupid – where “stupid” means anything that might trigger a Sintra redux.
And although quite a few commentators have suggested that Draghi’s decision not to use his speech to telegraph anything about ECB policy is probably tied to the bank not wanting to give the euro another excuse to rally, we would argue that it’s at least plausible that policy makers are trying not to upset the apple cart further against a backdrop where equities have fallen for two straight weeks on geopolitical jitters and concerns about the mental stability of America’s increasingly unhinged CEO.
Well, if you’re thinking about getting bearish now that risk assets appear to finally be on the back foot, Bloomberg’s Cameron Crise thinks you might want to be careful. More below…
Via Bloomberg
After two consecutive weeks of equity declines, superstitious traders may choose to view Monday’s solar eclipse as some sort of ominous warning. More prosaic investors will set their sights on Jackson Hole, where Janet Yellen is due to speak on the topic of financial stability on Friday. With volatility still low and asset valuations stretched by historical standards, it’s tempting to think that the Fed chair will unleash a shot across the bow of investors. However, regulation is a more likely object of focus, and even punters currently positioned for a correction would do well to remember that the secular bull market in asset prices remains very much intact.
- One of the most dangerous things in trading is to confuse what one thinks “should” happen with the forecast of what “will” happen. The relentless grind higher in financial asset prices is a difficult environment for macro traders, so it’s easy to succumb to the temptation that Yellen or Draghi will send a jolt through markets this week.
- The technical picture for stocks has clearly deteriorated over the last few days, so a tactically bearish stance certainly makes sense. A break below last month’s lows should see selling pressure accelerate.
- However, it’s important to put the current market phase into its proper context. In the big picture, the rampant bull market in financial assets remains alive and well. A strategy as simple as “Spoos and blues” (owning S&P 500 e-mini and 4th-year-out eurodollar futures contracts) has made fantastically consistent money since the crisis.
- “Do you want to be right or do you want to make money?” is an old market aphorism that’s as appropriate today as ever. It’s important to avoid the temptation to get every call right or to hit a home run with every bearish bet.
- The preponderance of evidence suggests that central bankers are observing asset markets with interest but are confident that the post-crisis regulatory regime can deal with most if not all imbalances. That’s not exactly a recipe for a Fed-inspired swoon in financial assets.
- Bears may be rightly on the front foot for the time being, but they’d do well not to overstay their welcome. The secular bull market remains intact, and there are no extra basis points for degree of difficulty.
