“I think this will be one of the historic recoveries 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 will get everything clear and start to return to normal? ”
But three months out of the year, Andersen is awful. In an interview last week, he talked about how large market segments appear to be in favor one day, the next. “We switch between value and growth, stay home and reopen, almost daily,” he said. “I don’t know who is driving this, but it has to follow some kind of algorithm.”
Andersen tries to be patient, acknowledging that the economy is at a turning point once a generation and that everyone is operating in unprecedented conditions. However, he said, financial markets sometimes feel like a house of books.
“It’s confusing,” he said. “The market is fragile and surprising. This whole year has been really a challenge for me to try to realize that there is an impulse, in which direction it is going and what is the responsibility for it. ”
As if the horrors of the global coronavirus pandemic weren’t enough for one curve, the last 12 months have thrown a lot of other headwinds against market navigation. There is a wave of retailers inclined to use the stock market as a gambling casino and a national policy so bitter that the presidential election has become bloody.
And that doesn’t take into account even the more existential questions: what is the right level for a stock market that fell 33% in about two weeks just a year ago? How much of this gain comes down to stimulating politics and how much is real? What proportion of the expected economic recovery is already at a price? What happens if the promise of the vaccine is not kept? What if this is as good as it gets?
Taken together, it leaves the people who manage the money, their customers and the companies that advise them, as confused as Andersen, with almost as many perceived red flags as there are theories about what causes it all.
“The most common observation we receive from customers is that markets are not ‘feeling well’ and we are absolutely getting it,” wrote Nicholas Colas, co-founder of DataTrek Research, in a recent note. “For us, much of this uneasiness comes from the novelty of seeing capital markets move from suffering to euphoria in such a short period of time.”
Market watchers point to all sorts of weird weirdos that seem to confirm that something is bent. Among other things, trading volumes have decreased since 2021.
Certainly, the high volumes of 2020 were just that – an abnormal appearance. But, according to some estimates, inexperienced amateur traders now account for up to 20% of the total volume in the markets. And, even if not all of them are defeated for short sellers, they still have very different priorities and incentives than much of the rest of the market.
Also worrying was the increase in US Treasury yields BX: TMUBMUSD10Y
In just a few weeks of the first quarter of this year, scary stock market investors, followed by weeks of Federal Reserve policy makers, assured markets that any interest rate hike will not begin until 2023 and will be telegraphed long in advance. . Strangely, the pink economic data caused the bond yields to fall in mid-April.
“Other strange things are happening,” said Everennis ISI’s Dennis DeBusschere in a note trying to explain the rally of government bonds. “SPACs and Solar are relatively severely affected, which is strange, given the lower movement in 10-year yields. Some cite that names sponsored by retail investors are generally hit as they move away from the market. And why are homebuyers underperforming and 10-year yields are falling? ”
Dave Nadig is a long-time student in the market structure, including as one of the first exchange-traded fund developers to help markets avoid another explosion, such as the 1987 Black Monday.
Nadig believes markets are healthy – meaning they work efficiently and remain resilient, even through hiccups, such as the rage of meme stocks over the past two months and the explosion of the Archegos family office. What has become “very fragile”, in his words, is the discovery of prices.
“There are some fundamentals of how dissolving markets work,” he said in an interview. “What we realize is that there is a lot more noise and randomness on the market than people are willing to admit. For the most part, what has changed is the flow of information and the movement of data faster and faster. Any model you build today by definition does not take into account an acceleration tomorrow. ”
Take Gamestop Corp. GME,
frenzy that erupted in January. After a group of dissatisfied traders spent a few weeks in the direction of short sellers, raising the price of the larger stock, “It is no longer a normal stock – it is a market externality that has ripple effects that some investors do not even know.” , Nadig said.
Older investment models – and algorithms – run into new ones that take into account new conditions, a process that Nadig calls an “arms race” and an accelerated one because of the modern speed of information flow and intelligence functions. reaction.
“We’re starting to see cracks in the traditional ways we’ve always analyzed markets,” he said. “We no longer process reality, we process information and it becomes instantaneous. I gave up the analysis “.
This means that a headline, say, about a break in the use of Johnson & Johnson’s COVID-19 vaccine does not just mean that Johnson & Johnson JNJ,
commercial shares are smaller, Nadig said. It means that for that day, the whole “reopening” transaction – and, by extension, some cyclical transactions and some value games – suffers.
For Peter Andersen, who has managed money for almost three decades and returned more than 40% to his clients in the last two years, the fragility of the market is frustrating. Andersen prides itself on “fierce independence” in stock selection resulting in a macro-agnostic portfolio. Some of his recent investments have been in cybersecurity, data storage and pet care.
However, so far, one of Andersen’s top picks, Trupanion Inc. BODY,
it dropped by 33% for no logical reason, he noted. “It’s like someone thinks everyone will euthanize their pets!”
Shares looked for Johnson & Johnson news to close higher for the week, with both the Dow and S & P500s setting new records. Dow Jones Industrial Average DJIA,
gained 1.2%, S&P 500 SPX,
increased by 1.4%, and Nasdaq Composite COMP,
added 1.1%.
Next week will bring U.S. economic data to the real estate market, including sales of existing and new homes, as well as a series of corporate revenue reports.
Read more: The new bull market is about to enter its second year. Now what?