foxex: Support

The Market Sum | Insight after the bell

By Caleb Silver, Editor in Chief

Thursday's Headlines

1. U.S. Markets Rebound Despite Weak Economic Reports

2. Fed-Spectations

3. Volatility Returns

4. Individual Investors Feel the Fear

5. September Jobs Report due Friday

Markets Closed

Dow
26,201.04 +0.47%

S&P
2,910.63 +0.80%

Nasdaq
7,872.27 +1.12%

VIX
19.12 -7.00%

Bitcoin
$8,180.63 -1.21%

US 10-Yr Yield
1.536 -3.76%

(credits: Dean Mouhtaropoulos/Getty Images)

Markets Today

U.S. markets swing into positive territory
U.S. Services sector falls to lowest level in three years
Volatility returns

U.S. markets bounced out of what looked like another steep drop this morning to close well into positive territory. It was underwhelming economic news again that fouled the air as a report on the services sector of the economy fell to a three year low. Most Americans are actually employed through the services sector, which includes education, government, transportation and trade. If the services sector is contracting, hiring could slow and layoffs may follow.

We'll get the nonfarm payrolls report for September tomorrow morning which may paint a clearer picture on the level of demand for workers across the U.S. economy (except for farms). Economists surveyed by Refinitiv expect 145,000 new jobs to have been added to payrolls last month. That's lower than the monthly average of 158,000 for 2019, and far lower than the 2018 monthly average of 223,000, but it's still job growth.

There was no rhyme or reason for the stocks to swing 300 points today from the red into the green, but maybe we hit a support level. Yesterday we talked about the 3000 resistance level for the S&P 500. Is 2900 the new 'support' level?

As James would say, we won't know until we have tested it... and we will probably test it tomorrow if the jobs report comes in weak.

Or... Are Investors Hoping the Fed Rides to the Rescue?

Another possibility is that investors are hoping and expecting that the Federal Reserve will cut interest rates again when it meets on October 30th. The Fed didn't make any promises at its last meeting, which caused a major selloff for stocks, but the probabilities of a rate cut in late October and mid December are both high right now.

According to the CME's Fed Watch Tool, there is a 90% probability the Fed will cut rates again by 0.25% at its October meeting, and a 50% chance it will cut at its mid-December meeting.

Source: CME

For individual investors like us, it's not that useful to make dramatic portfolio decisions based on the unknown. We don't know what resistance or support is for the broader market or individual stocks since we don't study those charts all day long. But, we can look at trends and decide whether we are comfortable or not with our level of risk and how our money is allocated across securities.

One trend that is undeniable is the return of volatility. We measure volatility by looking at the VIX or the Fear Index. It represents the market's expectation of 30-day forward-looking volatility by looking at the ratio of options trades betting on higher or lower prices. It had a relatively sleepy summer, but has woken up in the past few days. Day traders love volatility because it gives them an opportunity to make money as the market or individual securities bounce around in price. Long term investors like volatility as much as they like going to the dentist.

Here's the VIX over the past month.

How are Individual Investors Feeling?

Volatility, economic uncertainty, and unpredictability are not comfort food for individual investors. We've had a healthy dose of all of the above for the entire year, despite the fact that the S&P 500 is still up 17% year-to-date. (It's actually down 0.44% for the full year, which puts things into perspective.)

We like to look at the American Association of Individual Investors weekly survey from time to time to get a gauge of sentiment on Main Street.

As you might expect, sentiment is fearful with the majority of individual investors either Bearish or Neutral.

So...What to Do?

It's times like these where we need to get back to fundamentals. And, by that, I mean we have to ask ourselves fundamental questions about what we are doing as market participants.

JC Parets, a friend of Investopedia and a friend of mine, put it very succinctly in his newsletter to clients today:

There are 3 questions every investor should answer:

Why am I here?
What is my time horizon?
How much am I willing to lose?

If you can answer those questions, you should be able to build a portfolio that gives you a chance to grow your money while protecting you from steep losses.

We support you.

More News:

TradeStation Launches Free Trading With TSgo Offering

Tesla Breaks Down From Key Support After Deliveries Miss

Fearful of Stocks, Investors Move to Bonds and Gold

chart courtesy www.koyfin.com

Frozen potato purveyor Lamb Weston Holdings jumped more than 6% on better than expected revenue. Fixed-income trading platform Marketaxess Holdings rose nearly 6% on strong monthly trading volume, while biopharmaceutical maker Nektar Therapeutics and graphics card manufacturer Nvidia both rose nearly 5%.

Alcoholic drinks company Constellation Brands slid just over 6% today after it announced losses on its investment in Canadian marijuana producer Canopy. Charles Schwab lost nearly 4% over continued fears about revenue loss from its decision to eliminate commissions earlier this week.

Word of the Day

CBOE Volatility Index (VIX)
Created by the Chicago Board Options Exchange (CBOE), the Volatility Index, or VIX, is a real-time market index that represents the market's expectation of 30-day forward-looking volatility. Derived from the price inputs of the S&P 500 index options, it provides a measure of market risk and investors' sentiments. It is also known by other names like "Fear Gauge" or "Fear Index." Investors, research analysts and portfolio managers look to VIX values as a way to measure market risk, fear and stress before they take investment decisions.

(credits: VCG/Stringer)

Today in Market History

October 3, 2008

Today in 2008, George W. Bush signed the Emergency Economic Stabilization Act of 2008 (EESA) into law. This law authorized the treasury department to spend up to $700 billion on its "Troubled Asset Relief Program" (TARP) which aimed to restore market liquidity by purchasing mortgage backed securities, and bank stock among other assets. This number was later reduced to $475 billion, and, after loans were paid back and purchased assets were sold, TARP resulted in a small net-gain to the treasury.

(Source: https://www.investopedia.com/terms/e/emergency-economic-stability-act.asp)