It’s hard to say what really came as more of a surprise.
The fact that we have a President-Elect Trump or the fact that OPEC actually came to something of an agreement this past week.
When it has come to the latter, we’d seen any number of stock market run-ups in anticipation of an OPEC agreement to limit production of crude oil in an effort to force the supply-demand curve to their nefarious favor.
Had you read the previous paragraph during any other phase of your lifetime, you would have basically found it non-sensical.
But in the past 18 months or so, we’ve been in an environment where the stock market looked favorably on a supply driven increase in the price of oil.
So when it seemed as if OPEC was going to come to an agreement to reduce production earlier in the year, stocks soared and then soured when the agreement fell apart.
Unable to learn from the past, the very next time there was rumor of an OPEC agreement stocks soared and then again soured when the predictable happened.
This week, however, everything was different.
Maybe better, too.
Or maybe, not.
What was not better was that OPEC actually came to an agreement, although you can’t be blamed if you withhold judgment in the belief that someone will cheat or that U.S. producers might be enticed to increase production as prices rise.
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For anyone who is capable of remembering the sentiment that pervaded markets less than 3 weeks ago, the continuing shattering of stock market records day after day has to come as a surprise.
For those that had the conviction of their opinions, and there were some very prominent people expecting a sell-off in the event of a Trump victory, you have to wonder whether it was worse to miss out on the rally or worse to have been so wrong while in the public eye.
As that watchful eye looked at the DJIA, S&P 500, NASDAQ 100 and Russell 2000, all ended the week closing at their all time highs.
Do you remember what happened when the FBI announced that they were looking into some emails discovered on a laptop owned by one of Hillary Clinton’s top aides? Do you then remember what happened when the all clear was then given just days ahead of the election?
The conventional wisdom was that the uncertainty associated with the unpredictability of a Trump Administration was the antithesis to what the stock market needed to move higher.
That conventional wisdom was certainly reflected in the stock market’s exaggerated movements.
Do you remember the worldwide overnight plunges when it appeared as if Donald Trump would emerge victorious?
And then a funny thing happened.
After a quick 500 point gain in the DJIA when all of those earlier convictions were thrown out the window, the market has just had a slow and steady climb higher.
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You might be able to easily understand any reluctance that the FOMC has had in the past year or maybe even in the year ahead to raise interest rates.
To understand why those decision makers could be scarred, all you have to do is glance back to nearly a year ago.
At that time, after a 9 year period of not having had a single increase in interest rates, the FOMC did increase interest rates.
The data compelled them to do so, as the FOMC has professed to be data driven.
Presumably, they did more than just look in the rear view mirror, casting forward projections and interpreting what are sometimes conflicting pieces of the puzzle.
At the time, the conventional wisdom, no doubt guided somewhat by the FOMC’s own suggestions, was that the small increase was going to be the first and that we were likely to see a series of such increases in 2016.
Funny thing about that, though.
Data is not the same as a crystal ball. Data is backward looking and trends can stop on a dime, or if I were to factor in the future value of money based upon the increase in the 10 Year Treasury note ever since Election Day, considerably more than a dime.
Following the past week, it should be pretty easy to know what to do when the experts chime in and compete for your attention.
You run as far and as fast as your feet can possibly take you.
It will be fascinating to walk into a physician’s waiting room about 6 months from now and pick up some seven and eight month old copies of the news magazines sprinkled around the various end tables.
I’ve always enjoyed reading those aged articles just to get a snicker over how wrong the futurists and the experts consistently demonstrate themselves to be.
Most of the time, I don’t even have an appointment or any need. I just go to do the reading and then leave when someone finally asks “Sir, have you been helped?”
From the 99% probability of a Clinton victory in the Presidential election, as put forward by the Princeton Election Consortium, or the less sanguine 60-70% probability put forward by competitor fivethirtyeight, no one of any credibility got it right.
My guess is that if these elections predictions were written by stock analysts, the probability of a Clinton victory would have been reduced to 30% the day after the election, just as price targets and ratings are so often changed after stock moving news has already done its work.
Some days we really have no clue as to what made the market move as it did, but nothing bothers us more than not knowing the reasons for everything.
We tend to like neat little answers and no untied bundles.
It starts early in life when we begin to ask the dreaded “Why?” question.
We want answers at an early stage in life even when we have no capacity to understand those answers. We also often make the mistake of querying the wrong people to answer those questions, simply on the basis of their ready availability and familiarity.
Those on the receiving end of questions usually feel some obligation to provide an answer even if poorly equipped to do so.
While the market has now gone into a 9 consecutive day decline, it seems only natural to wonder why that’s been happening and of course, some people, have to offer their expert explanation.
It is of course understandable that the question is posed, as earnings haven’t been terrible and neither have economic data. Yet, a 9 day decline hasn’t happened since 1980 and has taken the market into a stealth 5% decline.
It’s good to have certainty in all matters of life.
There’s no doubt that stock market investors like to have certainty, or at the very least they really don’t like uncertainty.
Personally, when it comes to investing and the opportunities present when pursuing the sale of options, I like that intersection between certainty and uncertainty, especially if there is a volley back and forth, but the range is well defined.
That’s because that volley gives rise to more generous option premiums even as the risk may not reflect what is being paid.
Within that context, I’ve liked 2016, other than the brief reaction served up in response to the December 2015 interest rate increase decision by the FOMC.
With 2016 coming to an end in just 2 months and after the past week of corporate earnings, it was still hard to know where the economy was standing and whether the FOMC might have better justification to finally implement another rate increase, as we’ve all been expecting for almost a year.
So far, this most recent earnings season hasn’t provided very much of a pattern of good news on top and bottom line beats and there hasn’t very much in the way of optimistic guidance being given.
What certainty was missing over the past week with regard to the direction of the economy gave way to some certainty on Friday, however.
This past week was the first full week of earnings for this most recent earnings season and you could be excused for wondering just how to interpret the data coming in.
The financial sector had fared well, but if you were looking for a pattern of revenue and earnings beats, or even looking for a shared sense of optimism going forward from a more diverse group of companies, you’ve been disappointed to date.
For the most part, this past week was one of mixed messages and the market really rewarded the messages that it wanted to hear and really punished when the messages didn’t hit the right notes.
With so much attention being placed on the expectation that the FOMC would have sufficient data to warrant an interest rate increase in December, you might have thought that companies would start painting a slightly more optimistic image of what awaited their businesses, perhaps based upon a building trend from the past quarter.
That optimistic guidance has yet to prevail even as some have been reporting better than expected revenues.
But no one should be surprised with the mixed messages that the market hasn’t been able to interpret and then use as a foothold to move in a sustained direction.
The mixed messages coming from those reporting just follows the wonderful example of streaming mixed messages that have been coming at us all year long from members of the Federal Reserve.
About a year ago at this time, we were all waiting for what would turn out to be the first interest rate increase by the FOMC in nearly 9 years.
Once that increase finally arrived at the end of 2015, we were all preparing for what we were led to believe would be a series of small such increases throughout the course of 2016.
The problem, however, that stood in the way of those increases becoming reality was the FOMC’s insistence that their decisions would be data dependent. As we all know, the data to justify an increase in interest rates just hasn’t been there ever since that first increase.
The cynics, with the advantage of hindsight, might suggest that the data wasn’t even there a year ago, but that didn’t stop the FOMC from their action, which in short order took the market to its 2016 lows.
Back when those lows were hit in February, many credit Jamie Dimon, the CEO of JP Morgan Chase (JPM) for abruptly ending the correction by making a $26 million purchase of his own company’s shares. That wasn’t a terribly large amount of money, but it probably wasn’t a coincidence that the market turned on a dime.