WASHINGTON. Several economic and political crosscurrents combined Friday morning to create a mixed trading environment on Wall Street. On the plus side, University of Michigan researchers noted a 4 percent jump in its latest consumer sentiment numbers. A different set of numbers indicated a recent and substantial return of investors to stocks. And it looks like Beijing is pushing to wrap up at least a partial trade deal with the US. And soon. On the downside, stocks proved far from robust in quiet morning trading action, possibly influenced by quad-witching Friday conditions.
Let’s unpack this complicated suitcase of information.
Beijing pushes for trade deal with US, and soon
“Chinese Vice Premier Liu He spoke via telephone with U.S. Treasury Secretary Steven Mnuchin and U.S. Trade Representative Robert Lighthizer, Xinhua news agency reported Friday. The report, according to The South China Morning Post, said: ‘The two sides have further made concrete progress on the text of the trade agreement between the two sides.’
“The news comes after CNBC reported Thursday that Chinese negotiators suggest combining a state visit to the U.S. with the signing of a trade deal. Beijing wants a deal to be fully ironed out before President Xi Jinping meets with U.S. President Donald Trump.
“‘US-China trade negotiations will likely reach a temporary deal, transforming future negotiations into a framework to monitor China’s compliance with trade and intellectual property policies,’ Alberto Gallo, head of macro strategies at Algebris Investments, wrote in a note. He added, however, that ‘binary events’ like this ‘may not translate into tail risks.’”
As far as Beijing is concerned, as my parents used to promise me when they wanted to ignore my latest requests, “We’ll see.” We seem to get as much speculation from this press on this topic as we do on the exact day when Bob Mueller plans to wrap up his long-awaited nothingburger of a Trump-Russia collusion report.
ZeroHedge on the end of Wall Street bigwigs’ massive stock dump-a-thon
Moving on from China and Beijing and again on the positive news front, ZeroHedge has some interesting stats for us today. They hearken all the way back to last fall’s mid-September launch of 2018’s horrific, year-ending bear market. Apparently, even though markets began a robust January 2019 recovery from last year’s massive, anti-Santa Claus bear raid, the sellers, institutional and otherwise, were still at it even as the averages began to ramp back up.
But now, the Tylers at ZH tell us that the bears have finally retreated and thrown in the towel.
“After 13 weeks of near constant selling by institutional and retail investors, which as we noted last Friday resulted in the worst start to a year for equity flows since 2008, paradoxically even as the market was grinding ever higher[,] the bears finally threw in the towel in the latest week, when according to EPFR data compiled by Bank of America, investors bought a whopping $27.26bn of US stock funds and ETFs in the week ending on March 13th. This was the second largest inflow on record, behind $38.30bn from March of last year, and contrasts with a mix of small inflows and outflows earlier this year, including a $5.83bn outflow in the prior week. Drilling down, despite this week’s rather dreary volumes, BofA [Bank of America] also notes that the $12.1bn equity buying on Tuesday [was the] largest daily bid since Sept. 20, 2018, the S&P 500 market top.”
How Wall Street and the Deep State Hive actually work. Like lemmings…
We see here the outlines of a weirdly positive story, potentially at least. Institutions and corporate officers were convinced last fall that the Fed was bound and determined to derail the Great Trump Rally by killing it with perpetual interest rate hikes. Their logical response was to begin last fall’s mass dump-a-thon of stocks, killing the Great Trump Rally themselves and then some.
Horrified when, for some reason, the scales fell from their collective eyes, the Fed did a 180 and halted the bearish interest rate nonsense virtually without warning. Apparently, they finally noticed that their formulaic “return to normalcy” was within a millimeter of sending the US economy back to Armageddon. So they halted the nonsense just in time. (We hope.)
The bears ignored the Fed’s signal at the time, rightly skeptical of anything rational actually happening under our current Deep State rule. But individual investors and some funds sensed a sea change in market sentiment due to the Fed’s move and started a massive buying binge after January 1 this year.
The Bad News Bears continued to ignore what had just happened, however, and continued to dump stocks into the positive environment, figuring the sheep were just lining up to get sheared. Again. Like last fall.
Wrong answer, say the Tylers of ZH. Hence, it appears they threw in the towel last week.
Consumer sentiment and quad-witching action
But markets are always dynamic. They’re being helped Friday, at least a bit, by those newly published consumer sentiment numbers, we just noted above. And by those rumors from Beijing as well. But maybe not so much on the first quarterly quad-witching day of 2019. (But see update below.)
On the flip side, Wall Street’s major averages seemed a bit tentative Friday morning, with the Dow wallowing in slightly negative territory, while the broader-based S&P 500 and the tech-heavy NASDAQ were about 0.75 percent in the positive zone.
Some of this backing and filling might be due to this Friday’s once-per-quarter quadruple-witching action. That’s Wall Street jargon for the day that all four of the following speculative trades expire each quarter:
- Stock market index futures;
- Stock market index options;
- Options on common stocks and some ETFs; and
- Single stock futures.
The last hour of trading in these securities is, therefore, commonly known as the quadruple-witching hour. Or quad-witching hour. BTW, the first three out of the four trades listed above happen every month, which means that they all expire during triple-witching hour. Don’t ask me where they come up with this stuff.
Wrapping things up for the weekend
Triple- and quad-witching likely got its name from professional traders’ habit of picking off or executing options as they expire. That often leads to wild trading action that often follows recent bearish or bullish trading patterns.
Note, though, as we approach the noon hour Friday, the mostly negative Dow just decided to rocket up for a gain of +100 points (+0.40 percent) as we wrap this piece up. Hard to say why. Maybe the quad-witching bulls have launched some kind of buying binge. Do they know something we don’t know? If they do, we’ll likely not find out until after today’s closing bell, when it’s too late to do anything about it.
(UPDATE: As we finalize copy here around 12:30 p.m., the Dow is now up nearly 200 points. Maybe quad-witching is finally having a positive effect today for the bulls. Mr. Market always loves to embarrass financial writers.)
Voting tallies and political preference polls aren’t the only thing insiders and Deep Staters rig these days. Trust me on this.
Have a good weekend.
– Headline image: Cartoon by Branco. Reproduced with permission and by arrangement with Comically Incorrect.