TRADING THE WEEK: Just Come as You Are

The US equities market continues to invite investors in – a sort of a bring you own cash party.

Despite the backdrop of myriad geopolitical concerns, weather-related natural events and the upcoming Federal Open Market Committee meeting next week, traders remained bullish on a market that just can’t seem to move lower. Few sales were reported by floor traders and one told Traders Magazine that the buy-side remains laden with cash and no where to put it.

“While everybody talks about the market being toppy and keeping a watchful eye on sky-high valuations, no one seems to be selling,’ said one trader. “So, the cash sits on the sidelines. No buying but no selling either.”

Larry Peruzzi, Managing Director International Trading at Mischler Financial Group said that another way to look at this market is that it has entered into a financial state of Nirvana, a state of oblivion to care, pain, or external reality.

“Hurricane Harvey, Hurricane Irma, North Korean missile launches, London train station bombing…no worries, market keeps moving higher,” Peruzzi said. “While Nirvana the Band did finally meet their ultimate demise this market feels as though we have some more records to put in before it’s over, and that does not stink, if fact that ‘Smells like Teen Spirit’.”

Peruzzi recounted last week started with fear of catastrophic damage from Irma but due in part to better preparedness and response time the loss of life and physical property and infrastructure was less than feared and insurance stocks actually rallied on the news.  Also, last Wednesday’s August PPI data was mostly inline but we did see an uptick in August CPI data on Thursday.

“Some concern grew that we were entering an inflationary period in which the Federal Reserve might have to increase the pace of rate hikes,” he continued. “Those concerns were dismissed on last Friday after both August retail sales and August Industrial Production came in weak. This resulted in analysts reducing their estimates for Q3 GDP. We will be closely watching this to see if these misses and reductions in GDP are temporary weather-related issues or if we have a more complex issue here.”

This week the market will get more economic news such as August Housing Starts and Building Permits on Tuesday, August existing home sales on Wednesday but the main focus of the week will be the FOMC meeting and rate decision on Wednesday.

“No one is expecting any change to the 1.25% Fed Fund target so the statements will be toughly combed for indications of future hikes,’ Peruzzi said. “Fed speakers will be in a quiet period ahead of the FOMC meet with Governors Kaplan, George and William then speaking at events on Friday.”

Other traders said that focus also has returned somewhat to the VIX index. After rising to 12.23 on 9/5 the VIX is making another move lower and could breach below 10 next week.

In other market related news, SIFMA last week issued a statement from Kenneth E. Bentsen, Jr., SIFMA president and CEO, congratulating the House on its passage of the Fair Access to Investment Research Act (H.R. 910) sponsored by Rep. French Hill (R-AK):

“We commend the House for its bipartisan passage of the Fair Access to Investment Research Act, which would reduce obstacles to research on exchange traded funds (ETFs) and registered investment companies. This bill clarifies an outdated securities regulation by including a statutory safe harbor for certain covered ETF research reports and directing the SEC to promulgate rules, as appropriate, for research on other funds under the Investment Company Act of 1940.  As the ETF market continues to grow, this bill’s common sense clarifications will allow broker-dealers to produce more research on ETFs, providing consumers with greater access to information and fueling capital formation and job creation.”

Also, Goldman Sachs received approval to trade equities in Saudi Arabia, joining the growing band of western investment banks and fund managers expanding in the kingdom. It was reported that the firm applied to the local regulator, the Saudi Capital Market Authority, back in June for a license to trade equites.

In a statement, the regulator said it had approved a request by Goldman Sachs to amend its business in the kingdom and that the bank was now authorized for principal dealing, fund and portfolio management and advisory and custody activities.

Bloomberg reported that Barclays won the dismissal last Wednesday of U.S. class-action litigation by investors who bought its stock just months before the 2008 global financial crisis, and accused it of concealing its exposure to risky debt and an inability to manage credit risks.

U.S. District Judge Paul Crotty in Manhattan said investors failed to show that Barclays and underwriters led by Citigroup deceived them when the British bank sold $2.5 billion of American depositary shares in April 2008.