Yesterday evening, I noted that it would be grossly misleading to say the dramatic turnaround we saw in equities on Wednesday (that would be the wild reversal that was variously attributed to Larry Kudlow’s “soothing” comments) somehow suggests the market is digesting trade war jitters with alacrity.
If Wednesday was anything, it was a hair-on-fire, manic session that just happened to turn out for the best. And that’s become par for the proverbial course in the new year.
Wednesday was the 26th session of the year that saw the S&P move 1% or more in either direction. That is triple the number of such days in all of 2017.
Part of the problem here would appear to be the fact that so many of the issues for markets have no readily discernible solution – there’s no way to know how the trade spat will resolve itself, for instance.
There’s no way to know when the next Mueller headline will cross or what it will say, to take another example.
Or, just to throw one more unknown at you, there’s no telling what’s ultimately going to come of the administration’s decision to pile fiscal stimulus atop a late-cycle economy. Have a look at this chart from Deutsche that just underscores how unorthodox Trump’s approach to fiscal policy truly is in the context of the cycle:
And yet, despite the fact that these type of issues cannot possibly be resolved in the near-term, traders and commentators are quick to pretend as though this morning’s “dangerous trade escalation” is this afternoon’s “conciliatory trade rhetoric” – or some other ridiculous attempt at spinning whatever narrative “fits” with the trajectory the lines on the screen seem to have taken this hour.
One person who thinks this is absurd is former trader turned Bloomberg columnist Richard Breslow.
“Everyone but me seems adamantly sure they know how things will play out and therefore where asset prices are going,” he writes on Thursday, before offering the following sarcastic assessment of that misplaced sure-footedness, an assessment that is most assuredly worth a read as a reality check on any pretensions to insight you might be mistakenly harboring:
It’s hard not to feel caught in the middle. And a big middle it is because the bid offered spread on opinions just keeps widening. In an environment of such uncertainty, I’d expect, or at least hope, that being very granular would be the way to navigate markets. Instead, commentators are busy hunting elephants with grandiose opinions. And how’s that been working out?
There won’t be any telling you where things are actually going to go. It would take all the fun out of things. No spoiler alerts allowed here. But from a purely mental health point of interest, it should be surprising that so many traders who were saying just yesterday morning that the world was coming to an end aren’t taking this reprieve to do something about it. It would appear that too much trade location was sacrificed and this leap higher looks painful rather than amazingly fortuitous
And there lies the problem with opinions being so diametrically opposed. Today, it’s not things have calmed down a bit. It’s trade tensions ebb. “Bellicose” has been replaced with “Calm Reasoning”
We’ve gone from “get out, don’t you know we’re in a correction that’s heading straight to becoming a bear market” to “Yo loser, you have to be in it to win it. And by the way, where’s your stinkin’ correction now?”
That’s an awfully big leap that equity traders seem hell-bent on making over and over.