Wednesday, June 14, 2017

Equity market too stable

It's hard to trust the U.S. equity market now.  That's not because there is any distinct trouble visible. The issue is the ongoing creep up that has no catalyst.  This past Friday, some of the major tech stocks and the Nasdaq broadly took a significant hit.  By Tuesday of this week all was well although less than half of the decline had been clawed back.  The decline had been accepted as normal, and in the context of the last year it could be.

For example, after years of loving Amazon the company but never finding another entry point since a short stint of ownership in the late 1990's, in early September 2016 I jumped in with both feet.  As of Thursday of last week before the next day's slide, the position was up almost 25% in the nine months since purchase.  How could there be any concern about a decline that had no determinable reason other than an institutional thought that these big tech names had gone up too much in an uncontested way.  Everything else in the market was behaving in a relatively normal way.

That all leads to the thought that the next two days could be interesting to watch.  Are we beginning to move back into the strangely stable market behavior that we have had over the last two months, or is there a reassessment underway that will lead to more volatility.  Today's notable events were weakness in small caps and many mid caps with stability in plain vanilla large caps.  Apple retreated somewhat more, while Walmart, Costco, and Target continued to edge up nicely despite huge market concern about overall retail sales.  They are in fact part of the ongoing reason that niche retailers and mall anchors are challenged.

As always, some pundits tried to turn the rate hike today into news and a Vice News reporter tonight surprisingly painted it as a controversial and ill advised move.  It is a necessary move to try to build some management flexibility for the Fed if a day comes when some unexpected dire event requires the Fed to demonstrate its might.  That's all this is.  There is little major impact expected.

Stay tuned, but in Trump time, sort of like dog years, every day can bring unexpected change quickly.  Somehow it is expected that the next two days will not be boring.


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