US equity futures have rebounded overnight, Treasury yields are higher - back above 2.80% into the recent range, and gold has limped lower as markets step back from the brink.
However, as former fund manager Richard Breslow notes "it’s difficult to figure out just what outcome the market is hoping for..."
The news flow, at the margin, is certainly calmer and more compos mentis than we left things on Friday. Yet, for the first time that I can recall from previous and similar episodes, rather than palpable relief, there seems to be something more akin to disappointment.
Once again, the 200-day moving average proved its significance as a line-in-the-sand support area for the S&P 500 future. But way back in February when we had a double-bottom against this technical measure, there were celebrations on the Street.
The following couple of weeks saw a very tradable bounce. Today, however, one of the first pieces I read had a headline that included, “Black Monday Deferred.” And it seems to reflect the mood out there.
Now why should this be so? Certainly, unless one has an overly developed need to experience schadenfreude, why is there no joy in Mudville, more deep-breaths being exhaled? The reason would appear to be that many investors now assume that these episodes are something they will be expected to get used to. Nothing has actually been settled. Last week traders had girded their loins and were prepared for battle. Now they realize that the contest may only just be beginning. And for a market infused with years of enforced calm and repressed volatility, it’s a daunting and exhausting prospect to contemplate.
And to make matters worse, investors just can’t figure out whether Sod’s law means we’re in for a really rough second quarter or this thing is going to take right off again, leaving everyone’s benchmarks again out of reach. Tough thing to decide when there is simultaneously great conviction being outwardly expressed and utter lack of self-confidence inwardly felt.
If there is one question that no one seems to be able to answer regarding a whole slew of enormous issues, it is, “What will this mean?” On more issues than we can count, things can go in very different directions, with potentially enormous consequences.
Put the stock market aside for a moment and think about Treasuries. They aren’t in stasis. They are frozen. You can’t afford to sell them and buying them is distasteful. Now expand that to the dollar, emerging markets and metals and you realize the quandary.
We live in an environment where things up and down the line are being made up on the fly. As a trader, that is the new normal. It won’t get any friendlier, but it will be a more interesting time.