WASHINGTON. We’ve long opined in this column and elsewhere that the increasingly virulent Trump Derangement Syndrome (TDS) has come to infect nearly every player in the media multiverse. And that includes the financial media and the community of stock and bond analysts. Thus, it was no surprise to spot a juicy headline on this morning’s rolling edition of ZeroHedge: “JPMorgan Launches ‘Volfefe Index’ To Track Impact Of Trump’s Tweets On Market Volatility.” Shades of the old “covfefe” wars!
Okay, I’ll try to explain this.
Volfefe: Datapoints riffing on the long-of-tooth covfefe meme
Here are some key excerpts from what appears to be an article penned by ZH’s Twin Tylers, complete with the authors’ patented overuse of bolding and italics. (N.B.: But the underlined passage is via this columnist.)
“Some time in the past 3 years, US capital markets – already rigged and broken beyond comprehension by central banks and HFTs – crossed over into the realm of absurdity, but it wasn’t until this Friday that we got official confirmation. That’s when JPMorgan came up with the “Volfefe Index” (remember Covfefe) to quantify Trump’s impact on rate volatility….
“Besides his pet peeve, the Fed, which Trump believes is out to get him by not cutting rates faster (an assumption that was … cast away as merely paranoia until Bill Dudley, like a total idiot, decided to insert his foot in his mouth and confirm that the Fed does indeed pick US presidents and monetary policy is used to influence presidential elections) Trump’s market-moving messages have also addressed trade and monetary policy, with key words including ‘China,’ ‘billion,’ ‘products,’ ‘Democrats,’ ‘great’ and ‘dollars’…
“JPMorgan’s conclusion: ‘the president’s remarks on this social medial platform have played a statistically significant in elevating implied volatility.’
“Yet while a cottage industry of Trump Twitter experts has emerged in recent months, the reality is that even if Trump has elevated market volatility, it has yet to adversely impact the overall market, which remains 40% higher since Trump’s election, and roughly 30% since his inauguration, even if the S&P has gone almost nowhere in the past 12 months.”
Do Presidential tweets influence market volatility?
We’ve noted here, particularly in recent months, that President Trump’s seemingly inept yet surprisingly well-targeted Twitter memes have, in fact, caused startling jumps in the VIX volatility index with almost alarming regularity. That’s largely due to the obvious fact that this president knows how to troll his opponents. Big time.
Now, with tongue in cheek (or not), Morgan Stanley’s number-crunching geeks have devised an index to track this phenomenon, naming it (more or less) after the President’s (alleged) 2017 Twitter “gaffe” (or esoteric hit job) by dropping what appeared to be a bizarre typo – “covfefe” – into one of his pointed tweets. Morgan Stanley’s (trading symbol: MS) new index / meme swaps “Vol” (for “volatility”) for the “cov” in the original enigmatic Tweet, and voilà! We have “Volfefe.” Along with proof that bank geeks can troll, too.
(And for a plausible explanation of the original term “covfefe,” see Footnote* below.)
Time for the charts
Without getting too deep in the data weeds, the pair of charts below along with their embedded explanations demonstrate how Morgan Stanley’s analysts think Trump’s most pointed, market moving tweets directly correlate with Mr Market’s most volatile trading moves.
Unless this new Volfefe measure is a spoof, sheer trollery, or just another fanciful product of TDS, this measure could actually provide a statistical way to prove what we’ve long observed in this column. Namely, that Trump’s most pointed and targeted economy-oriented tweets embed some method into their apparent madness.
So, Trump tweets move markets?
In any event, whether you buy Morgan Stanley’s analysis or not, it’s clear that Presidential tweets have, at the very least, added another measurable datapoint relating to extreme headline risk. And it’s headline risk that now more reliably moves our stock and bond markets than more meaningful measures like actual earnings, PE ratios and historical chart patterns. FWIW.
As far as Mr Market himself is concerned, Arthur Hill, in a free article posted on Stockcharts.com Monday, observes that last week’s big Wall Street rally finally broke the broad-based S&P 500 average out of its summer doldrums.
“It was a big week for stocks and the breadth indicators backed up the bullish price action. The S&P 500 SPDR (SPY) broke out of its August range to signal a continuation of the bigger uptrend. Even though the Index Breadth Model turned bearish in mid August, the S&P 500 indicators remained net bullish and ultimately overruled the bearish signals from small-caps and mid-caps…
“So we have the range breakout heard ’round the world. At this point we must take it for what it is: bullish until proven otherwise. This breakout represents follow through to the surge on August 29th and suggests that new buyers are entering the market. Follow through was lacking during the range and this week’s follow through was impressive. Moreover, this move reinforces support from the August lows and the rising 200-day SMA [Simple Moving Average].”
One of Art’s Charts, and it’s a good one
Art provides a detailed chart that convincingly supports his observations.
However, he does issue a caveat noted elsewhere in many of Monday’s financial columns.
“In spite of the broad market being near all-time highs, a substantial number of stocks are not participating in the advance. This is not healthy.”
In other words, at the moment, we’re in a brief, positive seasonal atmosphere that usually shows up in early September. Problem is that mid-to-late September is historically an incredibly lousy period for stocks.
So either the current S&P 500 breakout signals a return to our increasingly lengthy bull market. Or we’re getting set up for a tremendous beating in the second half of this month. Fingers crossed. Caught between an unpredictable Fed, an unpredictable Brexit conclusion and an unpredictable resumption of US-China trade negotiations – plus the new Volfefe Index findings – investors will really have to thread the investment needle this month.
Good luck to all of us.
* Footnote (if you’re interested):
We’ve seen plenty of thinly sourced explanations for President Trump’s use of this apparent non-word. Most indicate that the President actually knew what he was doing and, as usual, was goading his detractors into freak-out mode yet again.
The most popular, yet not well-supported explanation says the “sons of Adam” used the term (variously spelled) to mean “in the end, we will win.” That’s cool. But I’d like to see a lot more proof before buying this one.
A more interesting – and perhaps more persuasive – explanation appeared via Steemit.com. (Note that the entry does not appear on this linked page. But, at least at the moment, by clicking a box to the right of that notice, you’ll cause the missing entry to magically appear.)
Need more proof?
“A few people have asked me about President’s Trump’s tweet in which he used the word ‘covfefe.’ Most people think he meant to write ‘coverage’ and they have had quite a bit of fun with it, but actually it is a real word of Yiddish origin, meaning ‘a futile search’ or ‘a pointless and false quest.’ It was originally transliterated from the Hebrew as ‘kabfefe,’ whose etymology is ‘kab’—relating to the mystical Qabalah—and ‘fefe,’ which is a word for ‘butterfly.’ What Trump was actually saying in Yiddish tweet-speak was, ‘We are doing great things despite the press’s negative and pointless search, aka fake news.’”
The full entry provides an interesting story to back up the author’s point. Again, it seems plausible, but I can’t find anything else to back this up. Plus, I have zero working knowledge of Hebrew. Of course, the Trump-hating search engines are not going to help me out on this informational quest. Their vested interests remain in defining “covfefe” as just another stupid Trump typo proving definitively that he’s illiterate.
Then again, maybe “covfefe” was a typo. What the hell? What a stupid century we live in, hanging up on such trivia.
– Headline image: Cartoon by Branco. Reproduced with permission and by arrangement with Legal Insurrection.