The action in the market was relatively calm in early afternoon trading as stocks only hovered modestly in the green. This contrasts starkly with the broad-based rally witnessed at the beginning of the day’s session. The fact that the volume is also significant seems to suggest that there is more of a rebalancing effort on the part of account managers as opposed to aggressive buy or sell decisions.
The action is due primarily to the fact that today is quadruple witching options expiration. While conventional wisdom would presume a spike in volatility, recent history has demonstrated that this is not necessarily the case. In fact, the opposite has occurred with the act a script much like what is being experienced today. It stands to reason that with the exception of an unanticipated external event, the near-term outlook is for a calm and orderly session into the close.
There has been much talk about there being a lot of cash sitting on the sidelines. While this remains a factual statement, at this juncture the amount of that money is substantially less than it was say five months ago. Money managers, for fear of missing out on this rally and responding to client demand, are starting to put cash to work. This is one of the key factors as it pertains to the resilience of the current market rally. As capital inflow increases, it will likely make the rally more sustainable. As it stands, the major averages are now hitting the highest levels attained for the year. The retail investor is beginning to hear how much things are improving and is now giving strong consideration to foraying back into equities. Add in the improving economic environment and the recipe for a sustainable rally becomes complete.
Can it have the Same Excitement as the Original?
By: Brian Sozzi, Research Analyst
In between pouring through financial statements and teaching myself new things, believe it or not I have time to read/exist as a human. Unfortunately (or fortunately depending on how one views it), most of those excess readings consist of financial magazines and financial books. And, every now and then financial television shows and movies. Talk about lack of diversity. Nevertheless, we are about to be hit by the next iteration to the movie, “Wall Street.” The movie, “Wall Street 2”, has a fairly straight forward plot; Gordon Gecko leaves jail, takes an eager young buck under his corrupt wings (though according to reviews, Gecko will have a heart), and seeks to bring down a short only fund. Initially, I was jazzed up about the movie; along with many I have memorized a good portion of the lines of the original. But, upon further reflection, I don’t believe the movie will have the same juice this time around.
My view not only stems from the actors (Shia Labeouf is not a 1980s Charlie Sheen; Michael Douglas as an aging Gecko just doesn’t charge me up) but the differences in periods. Back in the late 1980s, there wasn’t the magnitude of financial information available to people in the manner that is now attainable at a flick of a switch. As a result, Wall Street as a place had a mystique to it if one was not on the inside. Fast cars and easy money were among a few of the indulgences brought to life with a perfect cast of characters. Since then, we have lived through the savings and loan crisis, collapse of the housing market, and nationalization of major financial intermediaries in real time. It won’t be a surprise to the couple in the Midwest that Gecko could make millions in seconds; that couple lost thousands of dollars in the market rout last year as Gecko type people either appeared on television or slipped out the back door of their brokerage house. We lived through it in real time, so no shock and awe.
I will certainly have my tickets pre-ordered for “Wall Street 2.” However, like a good CFO discussing an earnings outlook, tempered expectations should be the modus operandi.
Bailouts Not Done?
By: David Urani, Research Analyst
The FHA announced today that its capital resources will fall below its minimum levels set by the government. The independently funded agency claims that it can pay its debts on its own, but concerns are mounting. The FHA insures approximately 5.3 million mortgages, 17.0% of which are in default. Some on the Street already suspected tens of billions of dollars will be needed to bail out the FHA, who claims it can now make profits following recent stabilization in the market. Soon after, the FDIC Chairman Sheila Bair said it will be meeting soon to discuss ways to deal with its dwindling capital reserves as banks continue to fail nationwide. Perhaps the most compelling option for the FDIC currently is to tap into a Treasury credit line, but it is also considering raising assessment fees for banks.
Please be sure to watch Charles Payne hosting “Cavuto on Business” on Fox News Saturday at 10:30 AM EST.