This is a manic environment.* *
We are moving a lot on very little information.*
This means that investors are going to exaggerate momentum intraday and they are going to change seemingly at random.
This is a blender market. You cannot trust the closes and you cannot extrapolate the latest move/trend.
I believe this is our environment until we exit the news-vacuum. We need data points to shape a consensus economic view and we need policy information to shepherd forward rate expectations.
That may be an impossible ask for a while though.
We’re in a transition phase emotionally. Bullish optimism in more growth is over. Now we are collectively worried about a coming change. This is all perception currently. If the data begins to show transition, we are going to struggle with pricing in how much change is coming and how fast. We also will have trouble pricing in how the Fed will change its behavior in response.
So my points here are these:
- Change exacerbates uncertainty
- The data hasn’t really started to change yet so this current uncertainty is based on unguided expectations only
- When the data starts to change, investors will become hyper-attentive to the data
- That will be the moment where data and news drives the tape more than emotional fickleness
- That will be the moment when expectations converge on reality
How long it takes us to get there is unknown so we may be stuck in the blender for months.
Nonfarm payrolls data (198k est vs 250k prior) releases tomorrow but if it doesn’t show a transition (high probability), it’s not going to matter.
See you tomorrow,
-Mike