Daily Market Newsletter

Hello folks, I’m back again after vagabonding through the UK for the past three weeks. Traveling abroad is almost a necessity these days to be able to get a better view of the world, for no other reason than the fact that markets are so globally interconnected these days. When I started this business in 2005, trading the S&P500 was a very US-Centric thing. Rarely were pre-market gaps seen over 5-10 points on the S&P’s, simply because nothing really happened overnight in the States that was not already known during that day. 

But since that time, not only have markets become more “global,” which means that nearly everyone around the planet is following them, but we also have Social Media to thank for nearly instantaneous news dissemination. So it’s really valuable for me to step away and see the perspectives from abroad from time to time. And with Great Britain, Socialism began immediately after the second world war when Churchill was voted out of power. That’s 74 years ago, and while their society is today a mix of Socialism and Capitalism, like the Mayflower some of those elements have drifted west to land on our shores. 

To this end, one of the largest influences that I’ve seen over the last decade is that we’ve begun the process of “Socializing” the stock market. Where it was once the domain of available capital and investors, it has very much begun to be a policy instrument. This truly began about a decade ago under Bernanke’s watch, and now politicians watch every tick in the markets as a barometer of their success. Yes, even the most capitalistic President in recent times views the US stock market as a social policy tool. Want people to feel better? Make the market go higher and spread the wealth. I realize that these are caustic terms in today’s environment; I’m not trying to take a stand or trigger anyone, just simply trying to call out a hypothesis that affects our investing stance. 

What this ultimately means is that no politician that wants to get re-elected will ever let this market drop for any length of time. 

My trip was well-timed to align with yet another quick correction that stoked up the negativity once again: 

A value of 32 is still relatively low and shows how much pessimism is out there, with a value of 24 (extreme fear) just a week ago after a 7.6% haircut, not even a full correction. 

Make no mistake, rates are going to go down in the near future, as we have been stating for some time that the odds of a rate cut by December of this year have been well above 50% for the bulk of the spring. Now the odds of a rate cut are 98.6% by December, and 95% by September. The Bond Market knows something: 

This further underscores the point that Jerome Powell’s December rate hike was clearly just a positioning move to allow him “room” for accommodation, which is coming. Cutting rates from 2% would have been less effective than from 2.25%. 

I’m left to conclude that after some short-term histrionics, which should include some form of “scary higher low,” we’ll ultimately see the market continue higher. We’ve been in a massive consolidation pattern since early 2018, or almost another “horizontal bear market” like we had in 2015-2016. All that energy that’s been coiled up has to go somewhere, the policy and odds favor it to go higher. 

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Defensive actions for the next trading day:

• Any vertical, butterfly, or diagonal debit spreads that we set up are risk-managed from day one, and no defense is really required.
• Closing orders have been entered for all new spreads.

Each graph below represents a summary of the current performance of a strategy category. For an explanation of what the graphs mean, watch this video.