Now May Be a Good Time to Jump Off the Daily News Cycle

Markets are fully in ping-pong posture. On the close of Tuesday, the 10-year Treasury had a yield of 4.81 percent. End of Wednesday, it was down to 4.73%, an 8-basis point shift in 24 hours. In other words, a sell-off one day and partial recovery the next.

Same with equity markets. The S&P 500 was 4,288.39 on Monday, 4,229.45 at close Tuesday, and then back to $4,263.75 on Wednesday. The Dow Jones Industrial Average went 33,433.35 to 33,022.38 to 33,129.55. Nasdaq cycled through 13,307.77, 13,059.47, and 13,236.01. A sell off followed by some recovery.

That led to some puzzling coverage, as the Wall Street Journal ran the headline, “Bond Selloff Threatens Hopes for Economy’s Soft Landing.”

Bloomberg ran “US Stocks Buoyed by Big Tech Gains as Yields Slide,” but that was between an initial file of 6:17 pm on October 3 and a 4:55 pm update on October 4. According to the story, “traders parsed US data and increased bets that the Federal Reserve can refrain from further interest rate increases.”

Until the Fed can’t, as multiple officials of the organization have signaled that high rates may be ongoing for some time.

These are the days that set your eyes spinning horizontally because, as economists know, expectations are everything.

Investors make decisions, supposedly rational, based on what they see happening in the markets. Then people try reading these collective tea leaves to predict the future. Except, the premise is off for a few reasons:

• Data flows have jitters. Things hop up and down with varying amounts of volatility, and you can’t count on the amount of variation being constant. Sometimes it slows, sometimes it speeds up. The best thing is to step back and learn some patients the way many who have been in various areas of finance and economics have over decades of being surprised and disappointed.
• Taking the collection of actions by investors gives an average take, which may or may not be accurate, particularly as some groups with cloudier eyes may influence a trend for no good reason. A classic example is when bad news about a company’s financial standing breaks over a weekend. Many retail investors will set up sales orders to dump stock, or at least reduce a holding. And then many professional traders wait until the morning panic settles, come in, and pick up shares on the relative cheap because they know the value will come back.
• Often the “market” thinks the Fed will eventually back down and give them what they want. The last 18 months or so should disprove the conceit.

Trying to outguess the future on a daily basis is maddening and ineffective. Scenario planning and adapting tactics as trends develop is a much better choice, and remembering that when most of the world is going in one direction, there are often opportunities by walking the opposite way.