Wacky Wednesday on Wall Street: Inflation spikes, stocks rally anyway
WASHINGTON, February 14, 2018: Surprise! It’s wacky Wednesday on Wall street. Today’s Valentine for beleaguered investors proves that the stock market has now become completely nuts. Almost any declarative, fact-based sentence appearing in any financial piece will be rendered factually incorrect within five minutes of posting it.
So why waste time coming up with detailed analysis as we usually attempt to do here? Let’s just spend a few paragraphs on today’s current and rather remarkable Wall Street rally. Then, we will exit before Wacky Wednesday deposits egg on our analytical faces.
Our latest “rally” got off to a rather iffy start this Wacky Wednesday morning. The market opened weak, quickly miring itself in red ink before a few feeble tries to reach the green. Then, the averages fell back once again.
But somehow, as we neared the noon hour, bullishness seemed to be asserting itself at last. As of now – 3:12 p.m. ET – the Dow has achieved a range hovering between 238 and 244 points to the upside. That’s nearly a 1 percent gain.
Right now, the S&P 500 and the NASDAQ are looking half-decent as well. The former is up nearly 1.4 percent while the latter is up an astonishing 1.86 percent.
Everything looks good. But we’ve learned and re-learned over the past two weeks or so to gather our Valentine’s Day rosebuds while we may and enjoy every positive move as it happens. That’s because, like Charlie Brown, Lucy and the football, that happy rally move is more likely than not to get pulled away from us at precisely the moment we’re beginning to relax and enjoy it.
(Meanwhile, don’t forget that Valentine card and/or bouquet for your sweetie, or you’ll have your own Wacky Wednesday, and a very unpleasant one at that.)
We’ve particularly enjoyed Wednesday’s current 26+ point surge in our seriously beleaguered Allergan convertible preferred “A” shares. (Symbol: AGN/PRA, although your broker’s symbol may vary.) After attempting to recover a bit early this week, all the positive moves in these shares were quickly negated, taking them back down and below previous lows and tracking closely with the common shares, which stunk up the joint in their own right.
The reason apparently was more “bad” news for one of the mother ship’s allegedly promising new drugs. But the news wasn’t really bad. Investors who’ve become disgusted with this stock ever since last fall’s Restasin patent setback just needed to sell even more shares on the latest panic, apparently.
Anyhow, we’re getting a nice snapback today, at least at the moment, even though the preferred shares went ex-dividend for the very last time. As veteran investors know, pretty much any stock is devalued on ex-dividend day each quarter by approximately the amount of its dividend. That’s only fair, since any new owner who picks up shares of the stock on the ex-dividend date or later, won’t get paid the current dividend.
Given the discount in these shares – they sit around $580 per share or so right now, down from over $900 per share last August (2017) – that’s no ordinary dividend either. It’s $13.75 per share.
However, this dividend, payable later this month, is the very last one AGN/PRA will ever pay. That’s because any shares currently held by individual shareholders like us will be converted to approximately 3.8 shares of the common stock (AGN) on March 1, 2018.
That, in turn, makes it a mystery as to why AGN/PRA is going way up today. The fat dividend game is permanently over. Plus, in just 2 short weeks, investors in AGN/PRA will be stuck with a large number of AGN common shares, which, among other negatives, pay a much smaller dividend currently.
So why are these shares spiking up today by 26-ish points? The answer: We haven’t a clue.
That’s why our Allergan preferred shares, badly gored but still alive, are swell proxies for this market. Stocks in general have been just as badly gored. Yet they remain alive and are attempting to revive the irrational exuberance that drove the averages in January. This is holding true even after this morning’s inflation report, which confirms, at least for the Fed, that inflation is increasing. This confirms the notion that the nation’s central bank will want to keep those interest rates increasing on schedule. We think.
For their part bond vigilantes are doing their best to kill off the current stock market party before it gets out of control, happily spiking the 10-year Treasury interest rate briefly to 2.91 percent, higher than it’s been in years. What makes that scary is that all the financial blow-dries appearing on financial TV shows are telling us that when the 10-year yield pops over 3 percent, we’re all gonna die. But stocks are rallying. Go figure.
Yet close as it is to that nasty threshold today, the 10-year treasury return appears to have influenced today’s irrational exuberance not one bit.
Which is why we’re closing this article right now. While we’re having fun today for a change, Mr. Market could get another panic attack today, just before the closing bell. That would likely force us to pull out that trusty bottle of single malt scotch once again to blot out yet another unpleasant turn of financial events. So why bother to make a prediction, when we know it will be wrong?
When this Wacky Wednesday style volatility (as in the dreaded VIX) finally settles down a bit, we might be open to a bit of opining once again. But not until.
Have a good afternoon.