Summer Markets & Unknown Forces

By Jeff Kelly on June 11, 2021

“You have to take it. Winning belongs to them and you have to take it.”

Tim Grover

There was a period when my children were young they incessantly asked “why”? As parents we have all experienced these periods. Kids want good concrete answers to their questions. We’d all like good answers to our questions about why the markets do things on a given day. The truth is market’s moves are the collective actions of many people. Sometimes there are easily identifiable reasons for trading moves. An economic report or an earnings announcement. Other times one can look high and low but there is no reason to be found for the movement of a financial asset. Certain times of the year lend themselves to more moves without any identifiable reason. We are entering Summer. And not just any Summer but the Summer after a pandemic. Lots of Fridays will be taken off, as well as early departures for the beach, golf course or lake. Not me of course.

We are already seeing volumes dry up on Fridays. Less volume means less liquidity. Less liquidity leads to more trading with little rhythm or reason. As we move through the next 60 days it would be wise to expect a pick-up in volatility. I know you will find it hard to imagine, but there are many market participants who will go to great lengths to take advantage of these kinds of markets. In the end markets find their appropriate levels. These lower volume periods just make getting there a little more interesting.

We see the markets marking sometime in the next few weeks. We are starting to see some subtle shifts at the margins of several groups. Bonds have begun to trade a bit better. Technology has begun to reassert itself. Biotech and some pharma stocks have also begun to look better. The caveat on all this is it’s occurring without the support of large volume. We’d always prefer to see changes in trends to be accompanied by significant buying power. So far this isn’t the case.

Charts From The Week Past

No one is bearish.

That’s not usually a good thing for the near term.

Source: All Star Charts

Initial unemployment claims down to 376,000.

About 100k to go to get to pre pandemic levels. It’s coming soon.

Source: Bloomberg, BLS, Hedgeye

Consumer Price index year over year. 

Source: Bloomberg, Hedgeye

Lots of the world is growing faster than the U.S.

A case for worldwide diversification.

Source: MSCI, IMF

The Consumer Price Index was up more than expected yesterday bringing inflation concerns forward.

The largest contributor to the increase was used car prices.

Source: Nordea, Macrobond

One forecaster out of 19 thought oil could hit 70 this year, yet here we are. 

Source: Bloomberg, Strategas

Volatility and credit spreads remain very low.

It’s unlikely we see the markets correct meaningfully without at least some turn higher in these metrics.

Source: Bloomberg, Strategas

S&P 500 companies talking about ESG a lot.

They want their companies included in all the ESG ETFs and mutual funds.

Source: Sentieo

Year over year Mortgage purchase applications turn lower with very tough comps coming.

Source: Bloomberg, MBA, Hedgeye

Mortgage purchase month over month applications starting to slide.

Tougher comparisons now through January.

Source: Bloomberg, MBA, Hedgeye

The “Q” ratio divides Corporate equities and liabilities by corporate net worth.

As you can see the ratio has never been higher. It doesn’t matter today but will at some point.

Source: Advisor Perspectives, Federal Reserve

The time from patient admittance to genetic testing and modeling is remarkable.

This is really happening.

Source: UNH

Very few workers per job opening.

There will likely be more as benefit cuts take hold in many states.

Source: Bloomberg, BLS, Hedgeye

I suspect not many layoffs but a lot of quits as jobs get more competitive.

Big movements in the labor force.

Source: Bloomberg, BLS, Hedgeye

New highs for TSA Travelers last weekend.

People are getting out!

Source: Bloomberg, Strategas, TSA

The Feral Reserve is providing lots of liquidity in overnight repos.

No one is sure exactly why this is occurring.

Source: Federal Reserve

Rates worldwide have been decreasing for decades.

Source: Bloomberg

Real Estate breaking out vs. the S&P 500.

There is a lot of room to move higher in these names.

Source: Optuma

Lots of job openings.

Source: Bloomberg, MBA, Hedgeye

Productivity is predicted to peak in the next few years.

This seems unlikely with the coming technology advances in A.I. and machine learning.

Source: Oxford Economics, DailyShot, @Soberlook

When Bitcoin trades below its 200-day moving average, it usually stays there for a while.

Source: Bloomberg, Strategas

Financials have been working through the small decrease in rates.

Source: Bloomberg, Strategas

Weekend Homework

An NFL player’s rookie trading card via an NFT.

@jerryjeudy My first official NFT Drop …

A good piece on DeFi and market structure.

FinTech 3.0 Re-Architecting Financial Market Infrastructure & DeFi

Pension funds buying lots of houses. A market distortion we haven’t seen in this size before.

If You Sell a House These Days, the Buyer Might Be a Pension Fund

The last surviving liberator of Auschwitz has died. This as we see a significant tick-up in Anti-Semitic attacks here and around the world.

David Dushman, last surviving Auschwitz liberator, dies at 98

Ships, a lot from China, turning off transponders to fish off Argentina.

Oceana Finds Hundreds of Vessels Vanishing Along Argentina’s Waters

Something we all are at times, but hate to admit. A very useful book.

In the tradition of The Wisdom of Crowds and Predictably Irrational, Being Wrong explores what it means to be in error, and why homo sapiens tend to tacitly assume (or loudly insist) that they are right about most everything. Kathryn Schulz argues that error is the fundamental human condition and should be celebrated as such. Guiding the reader through the history and psychology of error, from Socrates to Alan Greenspan, Being Wrong will change the way you perceive screw-ups, both of the mammoth and daily variety, forever.

From the elite performance coach who authored the international bestseller Relentless and whose clients have included Michael Jordan, Kobe Bryant, and Dwyane Wade, comes this brutally honest formula for winning in business, sports, or any arena where the battle is fiercely unforgiving.

In Winning, Tim Grover shows why he is one of the world’s most sought-after mindset experts. Drawing on three decades of work with elite competitors, Grover strips away the clichés and rah-rah mentality that create mediocrity and challenges you to embrace reality with single-minded intensity. The prize? Massive success.

The weekend is here and I’m happy to see it. Take some time to breathe and enjoy the view. Monday will come too soon.

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