TRADING THE WEEK: Stocks Hold as Treasuries Sell Off

Buy on the rumor and sell on the fact.

For most the year, the markets have followed that adage and have yet to see much ‘fact’ to sell on. But last week there was enough geopolitical and actual fundamental news ‘fact” to sell on. Traders reported that after last Wednesday’s Federal Reserve meeting the market sold off as rates were left unchanged. Also, posturing from the Tweeter-in-Chief at the UN General Assembly towards North Korea had some effects on the market – pushing sentiment on some stocks lower and yet others higher. Overall, the market drifted lower overall.

William Mingione, Drexel Hamilton

William Mingione, Head of Equities at Drexel Hamilton said that the Korea-directed comments pushed defense stocks higher; such as ITA which is up 15% since July and up 27% since the first of the year. The threat of military action and recent OPEC inaction on production (many expected cuts in bpd) saw crude hover at the $50 range.

“You’ve got the Russell 2000 moving nicely higher intraday and a close at or above this level would be a new all-time high,” Mingione said, eyeing the 1450 to 1500 barrier. “There have already been 7 all-time closing highs for the S&P 500 this September too. Only 2 other Septembers have had more - 1955 and 1995. So, the bias is to the upside.”

In the fixed-income markets, Treasuries continued their selloff last week , breaking through some major support levels. Mingione reported the yield curve remained the same from 2's to 10's, but flattening between 10's and 30's.

“The 30-year has been the best performing maturity recently. Spread product tightened last week continuing the trend seen two weeks ago,” Mingione said. “There is a correlation between tightening spreads and higher yields as absolute levels become more attractive and money is shifted out of treasuries to corporates, mortgages and agencies.”

Looking to this week, Mingione and others are expecting to see a tax plan out of the White House and even possibly  a Graham-Cassidy healthcare bill to repeal and replace Obamacare and all eyes will be on the will be on the GDP & initial jobless claims on Thursday.

Looking back and after much ado, the Federal Reserve voted to keep short term interest rates unchanged last week. While many traders across the Street weren’t expecting a change, the fact the FOMC met provided a distraction and some hiccups in volatility that spurred momentary trade. According to a recent Traders Magazine poll, 70 of those surveyed said that they were either very or somewhat concerned about the lack of market volatility and its subsequent effects on trading.

Traders are now pricing a upwards of a 75% chance of the Federal Reserve raising interest rates in December, up from 22% predicted in September. The Fed said it was confident enough about the US economy to raise interest rates further and to start reducing its $4.5 trillion balance sheet next month. The Federal Open Market Committee expects the economy to continue expanding at a moderate pace and the job market to keep strengthening.

In related news, Paul Donofrio, Bank of America's chief financial officer, has predicted a 15% drop in the bank's trading revenues this quarter, joining executives from other institutions cautioning decreases in revenues from their trading units. Bank of America's trading revenues make up just 16% of the bank's overall business.

Also, being the Chairman and Chief Executive Officer of a global exchange business is great. So much so that Jeffrey Sprecher, Chairman & CEO InterContinental Exchange was named the most influential individual in the exchange and market structure universe.

The crowning comes from Patrick Young & Exchange Invest, who has recently launched its ranking of The World’s Most Influential People in Market Structure, also known as The Exchange Invest 1000 (EI1000). Using a sophisticated methodology, the EI1000 index ranks individuals according to the level of influence these figures have on the sector.

The Index lists the 1000 most influential professionals in order of significance as measured by a series of algorithms and encompasses some 145 jurisdictions and over 500 different companies and organizations.

Lastly, Catherine McGuire, Counsel in the Division of Trading and Markets, is retiring after 44 years at the SEC.

McGuire has received more than a dozen awards for her service, including the Distinguished Service Award, the SEC’s highest award, in 1992, and the Presidential Meritorious Executive Award, in 2000.  She began her SEC career in 1973 in what was then the Division of Market Regulation and was promoted to positions of increasing responsibility, including serving as Counsel to Commissioner Bevis Longstreth from 1982 to 1983.  She was named Chief Counsel and Associate Director of the division in 1993 and has advised the division as Counsel since 2008.