Finally some action out there! The comatose market of much of 2017 finally saw some volatility with a large drop Wednesday as the political theater finally hit markets, but that was offset by solid gains Monday and Friday. Wednesday’s move was the largest drop since September 2016 (!!!) but in the end bears could only push the S&P 500 back 0.38% for the week. Until Wednesday’s move the S&P 500 had been on the longest streak of 0.5% or less daily moves since 1969!
“This isn’t about who is right or wrong; it is about a concern that a number of things could derail the future of economic growth that were not present a month ago.” Kevin Giddis, head of fixed-income capital markets, said in a research note.
“Even though optimism for Trump’s pro-growth agenda has mostly unwound, if this political crisis deepens and elevated volatility persists, equities could see further weakness in the short-term driven by deleveraging across fundamental and systematic strategies,” J.P. Morgan wrote in a note to clients, adding that “fundamentals remain supportive.”
The probability of a Trump impeachment has gone up after the recent events, analysts noted, with bookmaker Paddy Power’s odds reflecting a 33% chance it could happen. An impeachment requires the backing of two-thirds of the Republican-controlled Senate.
Many are pointing to the massive global asset purchase by central banks which is keeping markets elevated and tapping away volatility and so much money is chasing so few assets. Here is a fascinating chart on the scope – that’s about 9 TRILLION thrown at assets in the past decade. With 2 TRILLION of that in the past 12 months.
“It’s a battle of bearish political headlines versus bullish liquidity where liquidity has the upper hand. Like an IV drip, the world’s central banks, the Fed included, continue to buy financial assets with printed money,” said Ablin. “Over the last 12 month that figure approached $2 trillion.