Enjoy the Quiet
Posted on Sunday, April 23rd, 2023
The last two weeks have been the least volatile period for stocks in over two years. Hallelujah! Boy, have I enjoyed the break. It really could not have come at a better time. Tax season is always a busy time of year for us. The lack of volatility in the market allowed us the opportunity to talk with clients without having to worry about the market. Next on our plate is the rapid approach of Summer. I know that because Diane has reminded me that it is almost time to bring the kids home from school. I guess we will be taking a brief break from our empty nesting. It will be fun having the kids at home and we are all looking forward to taking our first big family vacation since Covid hit.
The market has been rather boring and stuck in a smaller and smaller range. 15 months ago, we began telling you that we saw the market being stuck in a wide range for 18 months. Is it time to break out? The investing world is ready for the most telegraphed recession in history. Money has been flowing into Money Market funds and out of banks as investors are satisfied getting their 4.5% rather than banking on a return in stocks trading at 18 times earnings. When we look for clues, we look to the bond market. We see the bond market finding a bottom in July. That could be the hint that we need to get out of money markets and begin to take on risk again. For now, that means a -” Sell In May and Go Away” scenario.
The market has been buoyed by the fact that the Federal Reserve was seen as adding liquidity due to the bank crisis. Remember that little bank crisis we had a few weeks back that lasted about 15 minutes? One thing that few noticed was that the Debt Ceiling issue was also adding liquidity to the system and that has also helped keep stocks afloat. Now that the Treasury is running out of funds and the X date is approaching the US Treasury will not be able to use their emergency procedures anymore and that will restrict liquidity and halt the flow of funds into the marketplace. No bank crisis. No emergency measures. Then the flow of funds will dry up. Stocks are not going to like that. The systematic strategies (computers) that have been chasing stocks higher and are now all fully invested. If stocks begin to move lower, then those computers will have lots to sell. The April monthly expiration is call heavy. It could unlock the market and allow it to move lower. The last two times a monthly expiration was call heavy markets moved lower afterwards. All we need is a catalyst.
I am still hoping for a quiet summer. We will be watching the spread between high yield and investment grade bonds. If it starts to blow out, then trouble is brewing.
“Short term volatility is greatest at turning points and diminishes as a trend becomes established.”– George Soros
I think we aspire less to foresee the future and more to be a great contingency planner… you can respond very fast to what’s happening because you thought through all the possibilities, – Lloyd Blankfein
A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty. – Winston Churchill
To learn more about us and Blackthorn Asset Management LLC visit our website at www.BlackthornAsset.com .
Disclosure: This blog is informational and is not a recommendation to buy or sell anything. If you are thinking about investing consider the risk. Everyone’s financial situation is different. Consult your financial advisor.