No Stimulus Negotiations as Congress Goes into Hibernation
There didn’t appear to be a lot of a response on the finish of the week to the information that Congressional leaders had been going to take their deliberate recess till after the September 7 Labor Day vacation. This may imply that the shortage of progress within the negotiations for an additional spherical of fiscal support aid is being perceived as a short-term threat. It may additionally affirm our evaluation that traders really feel the worst of the pandemic’s injury to the economic system is over and that the basics are prone to stay moderately supportive.
Finish-of-Summer season May Imply Decrease Quantity
If there may be short-term threat then traders are prone to take safety within the possibility market by shopping for protecting places. Any shock information will possible set off a fair steeper break. Nevertheless, with summer season winding down and one other earnings season within the rearview mirror, quantity may a substantial dip as a few of the main gamers take a trip from buying and selling.
Typically, low quantity fuels unstable swings and as a result of this yr’s unpredictable occasions, there may be at all times the opportunity of this occurring over the following three weeks or so.
Buyers find out about these dangers and appear to be taking issues in stride. In spite of everything, they’ve already endured the on-set of the pandemic, the worst plunge in unemployment and output in historical past, and escalating U.S.-China commerce relations. Additionally they know the stimulus is coming so the delay isn’t that essential proper now.
After Labor Day, quantity and volatility ought to decide up once more particularly if the VIX falls over the following three weeks. This will probably be our complacency indicator. After September 7 as the large guys return from the Hamptons, traders are going to should cope with the financial information from August and the Presidential election.
The financial information will characterize the shortage of progress on a stimulus package deal. So far as the election is worried, traders will probably be watching to see if Democratic candidate screws up and by some means blows his almost double-digit lead, and whether or not Trump continues to attempt to sabotage the method and skew the outcomes.
Hold Your Eye on the Vix
The current dumping of progress stocks and the strikes into value stocks may be the main traders hedging their dangers forward of the uncertainty. The one factor we’re pretty sure about is that the following three weeks are prone to be the proverbial “calm before the storm”.
The Vix has been slipping for months and is presently at 22.05. Slipping beneath 20 could possibly be an indication of investor complacency or a “What Me Matter” perspective. It’s complacency that may catch traders off guard, triggering the return of volatility.