market update

Whipsaws, Whiplash, and Algos

After living through the worst quarter (Q4 2018) since 2011, we just experienced the best start to a year since 2012, with the S&P 500 Index up +13.5% and international equities up +10.3% in Q1 2019. As recently as December 2018, the S&P 500 Index was down -20.2% (peak-to-trough, 9/20/19- 12/24/19), and the threat of moving into a global recession loomed large.  In other words, the first quarter was almost a mirror image of the fourth quarter.

What triggered equities to drop to bear market levels then to abruptly – and I mean abruptly! – reverse?

Dead Cat Bounce, Or Bull Market?

A “dead cat bounce” is a temporary recovery from a decline in equity markets. Downtrends are interrupted by brief periods of recovery — small rallies — when prices temporarily rise. The term is based on the notion that even a dead cat will bounce if it falls far and fast enough.  

I know – it’s a terrible analogy, especially for cat lovers like myself. But it’s a well-known term in the industry, and likely apropos to what has been occurring in equities over the past few weeks.   

Will the Markets Have a Tariff Tantrum?

The first half of the year has been filled with a series of worries and shocks. A looming trade war. Rising interest rates. A stronger U.S. dollar.  Anti-European Union sentiment in Europe. A potential nuclear showdown with North Korea. Yet for all its gyrations and mood swings, U.S. equities made progress in the first half of the year, up 2.5%.

The Punch Bowl is Gone, Volatility is Back

Even though we think global recession risk remains low – at least for this year – markets are responding to "the punch bowl being taken away" (meaning, less accommodative monetary policies.) With less accommodative policies comes the possibility of less robust growth. And Trump’s newly minted tariffs on selected imports are not helping the situation.

Old and Getting Older: The Economic Expansion’s 100th Month

The post-Financial Crisis economic expansion is heading into its 100th month, which puts it squarely in third place for the longest expansion on record. The market highs and sheer length of time that this expansion has been underway has some investors worried, but economic cycles don’t tend to die simply of old age – as high as the markets may be, there may still be room for them to head higher.