Since I last published my commentary, the equity markets in the US have experienced three late day, for the most part, last hour plunges. On the other trading day, Monday, the markets rallied steadily from the opening bell. All told, since the beginning of last week, the Standard & Poor’s 500 (SPX) has declined nearly 4%. As it turns out, the SPX is also off by about 4% for the month. For 2018 it is about 2% in the red.
Everyday seems to bring another “reason” for the market moves. Last Thursday it was the Facebook (FB) issue. Then Friday it was trade tariffs. Hold on; then Monday easing of trade tariff issues sparked that day’s rally. Yesterday, news that Nvidia (NVDA) was suspending testing of its chips for autonomous vehicles sent that stock tumbling. In turn, NVDA took down the semiconductor sector which then spread to all of technology and the rest of the market in what turned into the proverbial yelling fire in a crowded movie theater for the markets.
After the first correction, which began in late January, the markets rebounded in February only to give all the ground back in March. The question remains whether or not the markets would complete a “W” pattern and rally once again or continue to correct.
Here are my theories as to the recent market moves. 1) We have been in a news vacuum since the February jobs report. Other than the FOMC decision, which was well telegraphed, there has been no meaningful and objective economic news upon which the markets could react to. We will have to wait for April – the March jobs report and earnings – for that to occur. 2) Macro hedge funds, which under performed in 2017 and so far have struggled in 2018 went on the offensive by aggressively selling futures contracts in the last hour of trading. 3) The markets are experiencing a process of volatility mean reversion. That is to say; volatility after experiencing historical low levels are turning more normal. This adjustment process will bring with it greater swings in the market indexes. 4) Complicating matters is the end of the quarter and concurrent holidays which brings forth its own challenges.
Do you recall what sparked the first correction of the year? It was fear that the 10-Year US Treasury would go above 3%. It never did. Clearly that fear was unwarranted. This second correction pushed that yield below 2.8%. Lower yields on that 10-year will help to propel the next leg of the market rally.
So once again we can get cautious but not panic. Remember, we are in the sixth year of a bull market which could last another six to ten years before it is all over.
As to the NCAA Men’s Basketball Final 4 – Villanova will be victorious capturing its third all-time title and second in three years.
Finally, congratulations to the hometown Vegas Golden Knights for clinching a spot in the Stanley Cup Playoffs in its inaugural season. Go Knights Go.
Disclosure: At the time of this commentary Scott Rothbort, his family and/or clients of LakeView AssetManagement, LLC was long FB, NVDA, SSO & SPXL — although positions can change at any time.
Scott Rothbort is the President & Founder of LakeView Asset Management, LLC, a registered investment advisor specializing in high net worth private wealth management. For more information on investing with LakeView Asset Management, LLC call us at 888-9LAKEVIEW or request more information by clicking on the contact button on the top right hand corner of the website. LakeView Management, LLC is a Nevada LLC, with its principal office located in Henderson, NV and branch office located in Millburn, NJ
Scott Rothbort is also the publisher of the LakeView Restaurant & Food Chain Report, a newsletter focusing in on food, restaurant, beverage and agricultural stocks. An individual subscription to the newsletter can be ordered at www.restaurantstox.com Furthermore; Scott is also a professor at the Seton Hall Stillman School of Business in South Orange, NJ.
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