“I think this will be one of the historic recoveries, up there with the end of the major wars,” he told MarketWatch at the end of the year. “There is a huge demand from consumers. Can you imagine when we make it clear and start to return to normal? “
But three months into the year, Andersen is outrageous. In an interview last week, he talked about how large market segments seem to be in favor day in and day out. “We switch between value and growth, staying home and reopening, almost daily,” he said. “I don’t know who is driving this, but it must follow some kind of algorithm.”
Andersen tries to be patient, recognizing that the economy is at a single turning point and that everyone is operating in unprecedented conditions. Still, he said, financial markets sometimes feel like a house of cards.
“It’s confusing,” he said. “The market is fragile and surprisingly. This whole year has been a real challenge for me to try to find out if there is any impetus, in which direction it is going and who are responsible for it ”.
As if the horrors of the global coronavirus pandemic weren’t enough, the last twelve months have sparked a slew of other headwinds against smooth market navigation. There is the rise of retailers pushed to use the stock market as a gambling casino and a policy so bitter that the presidential election became bloody.
And that doesn’t even count the most existential questions: What is the right level for a stock market that fell 33% in about two weeks just a year ago? What part of this benefit comes down to the stimulus of politics and what is the real one? How much of the expected economic recovery is already priced? What if the promise of vaccination falls short? What if this is as good as it gets?
Altogether, it leaves the people who manage the money, their clients, and the companies that advise them, as confused as Andersen, with almost as many perceived red flags as theories as to what is causing it all.
“The most common observation we receive from customers is that markets don’t‘ feel good ’and we absolutely do,” wrote Nicholas Colas, co-founder of DataTrek Research, in a recent note. “For us, much of this discomfort comes from the novelty of seeing capital markets move from anxiety to euphoria in such a short period of time.”
Market watchers point to all sorts of weird quirks that seem to confirm that something is quirky. Among other things, trading volumes have fallen since 2021.
Of course, the high volumes in 2020 were just that, an atypical value. But according to some estimates, inexperienced amateur traders now account for up to 20% of the entire volume of markets. And even if all of them don’t reject short sellers, they still have very different priorities and incentives from much of the market.
It was also disturbing the rise in yields of the US Treasury BX: TMUBMUSD10Y
in just a few weeks of the first quarter of this year, stock market investors were frightened, followed by several weeks by Federal Reserve policymakers who assured markets that any rise in interest rates would not begin until 2023 and which would be telegraphed well in advance. Strangely, then, the pink economic data caused bond yields to fall in mid-April.
“Other strange things are happening,” reflected Dennis DeBusschere of Evercore ISI in a note trying to explain the concentration of government bonds. “The SPAC and the Solar are being affected of relative way, something that is strange given that produce low performances to 10 years. Some cite that names sponsored by retail investors are generally affected as they move away from the market. And why are homebuyers underperforming with a collapsed 10-year yield? ”
Dave Nadig is a long-time student of the market structure, included as one of the first stock exchange-traded fund developers to help markets avoid another explosion like 1987 Black Monday.
Nadig believes markets are healthy, meaning they work efficiently and stay resilient, even through hiccups, such as the bustle of memes in the past two months and the office explosion of the Archegos family. What has become “very fragile,” in his words, is price discovery.
“There are some fundamental fundamentals of how markets that are dissolving work,” he said in an interview. “What we realize is that there is a lot more noise and chance in the market than people are willing to admit. Above all, what is changing is the flow of information and data faster and faster. Any model you build today by definition does not take into account an acceleration tomorrow. “
Grab the Gamestop Corp. GME,
frenzy that erupted in January. After a group of disgruntled traders spent several weeks addressing short sellers raising the price of these shares, “it’s no longer a normal value, but it’s an externality to the market that has current effects that some investors can’t even keep in mind, ”Nadig said.
Older investment models, and algorithms, face new ones that take into account the new conditions, a process that Nadig calls “an arms race” and that is accelerating due to the modern speed of the flow. of information and reaction functions.
“We’re starting to see cracks the traditional way we’ve always analyzed markets,” he said. “We no longer process reality, we process information and it has an instant price. We have given up analyzing.”
This means that a headline, for example, about a break in the use of the Johnson & Johnson COVID-19 vaccine does not only mean that Johnson & Johnson JNJ,
shares are trading lower, Nadig said. It means that for that day all the “reopening” trade is suffering, and by extension, some cyclical business and some value plays.
For Peter Andersen, who has managed money for nearly three decades and has returned more than 40% for his clients in each of the last two years, the fragility of the market is frustrating. Andersen prides himself on a “fierce independence” in stock selection that results in a macroagnostic portfolio. Some of his recent investments have been in cybersecurity, data storage and pet care.
However, so far, one of Andersen’s best options, Trupanion Inc. TRUP,
it has dropped 33%, for no logical reason, he noted. “It’s like someone thinks everyone is going to euthanize their pets!”
Shares seemed beyond Johnson & Johnson news to close higher during the week, with the Dow and S & P500 indexing on new records. The Dow Jones Industrial Average DJIA,
gained 1.2%, the S&P 500 SPX,
rose 1.4% and the Nasdaq Composite COMP,
added 1.1%.
Next week will provide US economic data on the real estate market, including sales of existing and new homes, and a series of reports on corporate earnings.
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