September 27 Equities Commentary: Todd Colvin

– Todd Colvin: Equities ended the week hitting three-week lows. And to give you an example of just how busy it was on Friday, last week, the prior week, we saw about a 40 handle range in the E-Mini S&Ps. Today, we saw about a 50 handle range in the E-Mini S&Ps. You can kind of get a sense as to the differences that we’re seeing from week to week, and as we’re seeing pretty much from day to day. At this point, a lot of the negative news coming. Obviously, we’ve got month and quarter end, but again, we’ve also got all this political pressure. We’ve got things with China headlines. We’ve got geopolitical risks, and Washington continuing to rise and ebb and flow. There’s a lot going on out there that is pushing the stock market around. Today, it seemed to really grapple with the sellers. And they were in in full force. And if you look at the VIX Index, obviously with stocks down big on a Friday, yes, the VIX Index was higher, yes, it is remaining elevated. But it doesn’t give you that sense of fear, that sense of potential of fear that the VIX used to carry when we’d see these big move days, when we’d see these outlandish breakouts. We aren’t seeing any of those big moves in the VIX. Now, the E-Mini S&P touched on its 50-day moving average today, and is probably gearing towards its 100-day moving average, which is about 25 handles below where it trades right now. That being said, the 100-day will create a pop in the VIX, possibly north of 20, a level that has kind of been a line in the sand for the “uh oh, what’s going on?” type of trade. This point right now, we’re below 20, we haven’t hit the key 100-day moving average yet. The 50-day may just be a yellow alert for the market, but the 100-day would certainly be something more to reckon with. And next week, the big economic story will be jobs. And obviously jobs and other economic data have gone by the wayside when we wait for headlines from China, when we wait for headlines from what’s going on in Washington, or maybe something over in the Middle East, or perhaps something over in the UK or Europe. Those are what’s stealing the headlines. But equities have become very, very focused on those headlines, and have overlooked a lot of the data. One thing I haven’t even mentioned is the Fed. And we got a slew of Fed speakers next week who are going to talk about policy. But if that jobs number isn’t very helpful, we do have an FOMC at the end of October. And there is some pricing in of a possible rate cut then. Obviously, we’re fully priced for a rate cut by the end of the year. But now we’re starting to see odds filter in of a rate cut of 50 basis points. When we see equities go down like this in the face of an easing and a very dovish Fed, it has to make you wonder, because, obviously, easier rates are very positive for equities and risk takers. But in this case, the Fed’s uncertainty, I think, is part of this puzzle that we’re seeing when it comes to headline risk, when it comes to economic risk, and it comes to Fed uncertainty risk. As to what they know and what they’re going to do, equity markets don’t like an uncertain Fed, they don’t. And I think at this point, right now, until the Fed gets its sea legs under it, equity markets will continue to remain volatile. But obviously, the key to all this movement in the equity markets has been China US trade. When we find resolution in that, we will certainly get resolution and clarity on the equity markets and the weeks and months ahead.

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