Over the last several weeks, the S&P 500 (Index: SPX) has been on a tear, setting records on an almost daily basis despite lacking breadth, with the biggest rises in stock prices concentrated in the technology sector.
Until last week, when what we've described as a bubble in stock prices appears to sudden pop after spiking up to hit an all-time high.
Remarkably, the S&P 500 waited to exit the redzone forecast range we've been focused upon for the last six weeks in the alternative futures chart.
The week preceding the Labor Day holiday in the U.S. was also the one when we finally got better insight into what was one of the biggest factors of the stock market rally over the past several months. It turns out that Japanese investment bank SoftBank has been engaged in a series of trades in the options market for tech stocks that were large enough to swing the entire market, while also explaining why the market's months-long rally has been so concentrated in these issues.
Much of the story turns out to be pretty technical, where ZeroHedge deserves a lot of credit for following the breadcrumbs. Here are links to the more significant parts of their coverage from the past week:
- "This Might Be The Weirdest Market I’ve Ever Seen" - Charting The Market's Descent Into Insanity
- The Last Time This Happened Was The Day The Dot-Com Bubble Burst
- "A Classic Feedback Loop": Why Everyone Is Chasing The "Gamma Crash Up"
- An Epic Battle Is Raging Beneath The Market Surface
- An Epic Battle Is Raging Beneath The Market Surface
- Connecting The Dots: How SoftBank Made Billions Using The Biggest "Gamma Squeeze" In History
The WSJ and the FT have also jumped in with their own coverage.
From our perspective, we associate this kind of market activity with the kind of rapid, quantum-like changes in the level of stock prices, so it is interesting to see what appears to be just that kind of action happen when SoftBank's role in fueling the tech rally was exposed and apparently suddenly curtailed, with investors seeming to suddenly change their forward-looking focus from the distant future quarter of 2020-Q4 inward toward the near-term future of 2020-Q3, as suggested in the alternative futures chart.
That wasn't the only news of the week, where we fished the following headlines for their market-moving potential from the week's newstream.
- Monday, 31 August 2020
- Daily signs and portents for the U.S. economy:
- Oil dips as prices struggle to break through demand uncertainty
- U.S. Senate's McConnell eyes revamped coronavirus relief bill, Mnuchin tells Fox Business
- Bigger trouble developing in Japan:
- Bigger stimulus developing in South Korea:
- Fed minions won't get fooled again:
- Fed’s Clarida says new inflation-fighting strategy has roots in failure of old approach
- Low unemployment alone not enough to justify Fed rate hikes, Clarida says
- Fed to resume discussion of next policy steps, Clarida says
- Wage growth is false signal on state of labor market, Fed's Daly says
- Bostic: Fed's tools limited as long as health trajectory remains in doubt
- Nasdaq ends higher while S&P 500 posts biggest August gain since 1986
- Tuesday, 1 September 2020
- Daily signs and portents for the U.S. economy:
- Oil rises on strong factory activity, crude drawdown forecast
- U.S. manufacturing activity strongest in nearly two years in August
- U.S. CDC issues sweeping halt on residential evictions to combat virus
- Factbox: Americans on lockdown pay more for groceries, clothes and appliances
- Bigger trouble developing in Brazil:
- Bigger stimulus, bigger prices developing in South Korea:
- South Korea plans for coronavirus cash handouts for second time: finance minister
- South Korea August inflation hits five-month high as fresh food prices soar
- Fed minion says more Fed stimulus will happen:
- ECB minions expects faster recovery, bank bailouts/consolidation, and deflation:
- ECB's De Guindos sees a strong rebound of euro zone economy in third-quarter
- ECB's De Guindos sees bank consolidation in euro zone starting soon
- Europe's inflation plunge to raise red flags at ECB
- S&P, Nasdaq close at record highs in tech-fueled rally
- Wednesday, 2 September 2020
- Daily signs and portents for the U.S. economy:
- Oil drops 2%, reversing course as U.S. gasoline demand slumps
- U.S. CBO sees FY20 federal budget deficit of $3.3 trillion amid coronavirus spending
- U.S. private payrolls undershoot expectations; labor market recovery losing speed
- Bigger trouble developing in the Lucky Country:
- Bigger stimulus developing in Japan, as BOJ inspired by Fed:
- Taking a leaf from Fed, BOJ may need to focus more on jobs, deputy governor says
- BOJ's Wakatabe hails Fed's new target as 'historical' decision
- Fed minions effectively say zero-bound rates are here to stay and government should spend even more, while others worry about inflation:
- Fed's Daly sees 'no pressing need' for further rate guidance
- Fed's Mester says new framework makes clear strong employment not always a concern
- Fed's Barkin says U.S. economy will need sustained support: WSJ
- Wall Street closes higher with defensive bets out front
- Thursday, 3 September 2020
- Daily signs and portents for the U.S. economy:
- U.S. job growth seen slowing in August, unemployment rate falling below 10%
- U.S. second-quarter productivity revised sharply higher; fastest rise since 1971
- Investors snap up U.S. corporate debt, pushing some real yields below zero
- Bigger trouble developing in the Eurozone:
- Euro zone July retail sales much worse than expected
- Euro zone recovery lost momentum in August as economies diverge
- Bigger stimulus developing in Japan, France:
- BOJ's Kataoka urges bolder easing to battle deflation risk
- Japan's Suga signals readiness to compile 3rd extra budget to fight pandemic
- France targets green investment, jobs with huge stimulus plan
- Fed minions give green light to inflation, ECB minion wants brakes put on government borrowing:
- Fed policymakers signal comfort with higher inflation
- Euro zone public deficit levels unsustainable, ECB's Wunsch says
- Tech tumble jams Wall Street into reverse; sharpest fall since June
- Friday, 4 September 2020
- Daily signs and portents for the U.S. economy:
- Deal reached to fund U.S. government past month's end, Pence says
- Economy adds 1.4 million jobs in August, unemployment falls to 8.4 percent
- Fed's Powell says U.S. jobs report for August was 'a good one': NPR
- Fed's Rosengren says U.S. jobs report stronger than expected: CNBC
- U.S. job growth slowing as fiscal stimulus tapers offs
- Oil falls 3%, posts weekly drop on demand concerns
- Wall St ends lower as Nasdaq rout persists
Elsewhere, Barry Ritholtz' summarized the positives and negatives he found in the rest of the pre-Labor Day holiday week's economics and markets news.
The big question we have for the holiday-shorted trading week ahead is whether last week's surprise volatility will continue.