“Someone is getting the information before you. Why don’t I fire you and hire them?” Those are some of the (thankfully few) harsh words I ever heard from Stevie Cohen in my time at SAC. Ultimately everyone had the same job in “the room”: be first with market moving information. No one heard this threat twice; either you improved or you were out.
So when US stocks suddenly rolled over last Tuesday, I assumed someone knew something. News of the arrest of Huawei CFO Meng Wanzhou in Canada broke a day later on Wednesday evening, even though she had been taken into Canadian custody over the weekend. That clearly provided enough time for the event to filter through and start to hurt US stocks before the headlines crossed. That US markets were closed on Wednesday likely gave Tuesday’s in-the-know sellers some sense of urgency as well.
Information asymmetry of this magnitude amplifies volatility, and all the more so when markets are already stressed. Buyers go on strike, fearing markets are starting to discount news that hasn’t crossed the wire yet. Sellers want to get their trades done ASAP for the same reason. This is not a recipe for bullish market action, and we expect more volatility this week.
At the same time, we do want to take a few moments to play the bullish contrarian even as US equity markets whipsaw. It is always easy to embrace the dark side of bearishness when asset prices falter. But just as “faint heart never won fair lady”, fear is as impotent as hope when it comes to investment strategies.
Here are 6 bullish arguments to consider:
#1. The S&P 500 is 2% away from its 2018 lows, but has not yet made a new low for the year. The actual nadirs for 2018 were: 2581 on February 8th and 2582 on April 2nd. The same no-new-lows-yet is true for the NASDAQ Composite and the S&P Small Cap 600. Only the Russell 2000 has set a new 2018 low, and that just came on Friday.
Conclusion: even in the current selloff, markets do not yet fully embrace the notion that trade wars/interest rates/US economic growth are in a materially worse place than earlier this year. That cuts both ways, to be sure, but it is a sign that some hope remains as dry tinder for a rally.
#2. Chinese equity markets have been stable since mid October. Both …read more