Active on the Wall

By September 18, 2020Weekly TGIF

What a week for investors. The election campaign keeps heating up with the most divisive rhetoric in decades. There was a Fed meeting followed by a slug of hot IPOs. The month of September started with the Market overheated. Just past the midpoint, a bit of a correction has occurred. It’s quite healthy after going too far, too fast.

Stocks had rallied for 5 months on the recovery story, vaccine optimism and aggressive Fed stimulus. However, Congress has been in gridlock, preventing additional Fiscal stimulus. US-China relations are as tense as they’ve been. Added to that is the seeming stall of the economic recovery. The result is a Market in retreat mode. The recent high-frequency data in the form of credit card spending, dining out, airline traffic, and Apple mobility traffic have shown things have cooled around the country.

Volatility is the theme. Stocks opened Friday in the green, but quickly turned red to close out the week. This was the 3rd consecutive weekly decliner for the S&P since March. Today was a quadruple witch, which means all 4 sets of options expire. It is a simultaneous expiration of Market Index Futures, Stock Futures, Market Index Options and Stock Options. It creates extra volatility. There’s been a lot of it already. That is especially the case with Tech.

It started with the Fed. America’s central bank hosted its final meeting before the election. The Fed Chairman praised Congress for its swift and substantial response in March. He also made it clear Congress needs to do more. The Fed seems to be overcompensating for the lack of Fiscal policy actions as Congress remains gridlocked ahead of the election. There’s only so much the Fed can do. The greatest strength of our central bank is its ability to defend and prevent a financial crisis. That’s precisely what it did in March, and it clearly worked. But the risk of evictions and foreclosures keeps rising, and the Fed did not dismiss the severity.

The Fed has a major challenge of trying to convince the Market that it’s going to keep rates low, pretty much forever. It cites the lack of inflation for the basis of the plan. But the Fed is going to have its work cut out for it much sooner than forever. 2023 is a long time from now and there are so many variables at play. But the notion that the Fed did not extend its aggressive asset purchases in its forward guidance sent stocks lower on Wednesday and the momentum downward carried into the weekend.

The IPO Market has reflected the enthusiasm and excesses in the Stock Market, particularly in Tech. A White Hot IPO hit the Market this week. Snowflake became the largest Initial Public Offering for a software company, ever. The company, which started in 2012, was instantly worth more than Goldman Sachs, its own Wall Street banker. I got a kick out of knowing that.

Speaking of Wall Street, something really important happened, which might have been lost in the chaotic headlines of 2020. Citigroup has a new CEO. Her name is Jane Fraser. That’s right, HER name.

Jane Fraser will be the first woman to run a big Wall Street bank. Since the Buttonwood Agreement in 1792, which created the New York Stock Exchange, there has never been a woman at the top. She will be joining only 31 women among the chief executives of the 500 companies that make up the S&P. As the successor of a woman founded firm, the leader of a team which is majority women, the husband of an attorney who was her firm’s first woman partner, and the father of 3 girls, I think this is just outstanding. This is progress to build on. And build it will. I am all in on this.

Have a nice weekend. We’ll be back, dark and early on Monday.

Mike

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