If you knew you had a big purchase to make, the kind of purchase you make maybe quarterly, you’d probably hold off for a few days if you thought you could get a better price, wouldn’t you?
By Vikram Rangala
Thursday, April 2, 2015
That, as much as any particular macroeconomic factor, is enough to explain the downward slope of US stocks over the past two days, as funds move from selling out the unwanted parts of their portfolios to buying for the second quarter.
And if you also knew that a lot of the people selling what you wanted to be were going to closed today, you might stay home, too, right? That may be enough to explain the low volume of trading. Low volume, however, can sometimes lead to late-day surprises. As of 1:15 PM Central Time, we haven’t seen one.
Today may be a prime example of when the news is not the major driver of the markets and instead, it’s just a matter of traders being smart shoppers.
It’s not as though it’s been a slow news day. Today has had several developments that could trigger big market moves. Janet Yellen gave a speech, weekly jobless claims came in much lower than expected, and biggest of all, Iran and a US-led coalition of negotiators announced a breakthrough deal on Iran’s nuclear research and development.
Chair Yellen’s remarks were noteworthy mainly because she repeated her view, first expressed last October, that income and wealth inequality is a major challenge facing the country and may well be harming economic growth. She was grilled on this topic in her February testimony before Congress, during which Republicans in both houses accused her of veering from the Fed’s core mission into politics.
The Fed, unlike many other central banks, is charged with two major responsibilities: first, to control inflation and second, to promote maximum employment. Chair Yellen’s position is that inequality in the US is so bad (worse than it was in 1929) that it restricts the Fed’s ability to pursue those goals. On a slow news day, her remarks would have been parsed for hints about when the Fed plans to raise rates. Instead, we know what we’ve known for a while: they’ll raise them this year, sometime.
One sign that part two of the Fed’s mission is working is the weekly jobless claims number, which came in at a nine-week low. The major number for the week is the Labor Department’s Employment Situation report, which contains the monthly Nonfarm Payrolls number.
The deal with Iran, which many had said was going to cause turmoil in the price of oil, has so far done little to either the price crude futures or stocks. Oil is down about 65 cents, even though the deal could mean a lot of Iranian oil getting dumped on an already oversupplied market.
Due to an unusual (10 times since 1980) confluence of lunar, solar, and fiscal calendars, the Nonfarm Payroll number will be released at 8:30 AM Eastern time tomorrow, which is both Good Friday and, from evening on, the first day of Passover. That leaves 45 minutes of morning electronic trading in which traders can react to the number before the markets shut down for the holiday.
Can react, but probably won’t. When the volume gets low and you don’t have enough liquidity, it’s hard to get filled at the prices you want and you’re subject to unusual and unpredictable volatility. As one stock futures analyst told Bloomberg Thursday morning about his plans to watch but not participate on Friday: “You may think you have the call right, but there may not be any liquidity, so you don’t want to put yourself at that risk.”
It’s important not to underestimate the role holidays play on whether traders trade. The low volume today suggests many traders have already decided to turn their three-day weekends into four. With automated programs to execute certain necessary orders, many funds spent today in a holding pattern, ready to jump on a big move but also, probably hoping things will stay quiet so everyone can go home.
Which brings us back to my question about being smart shoppers. If you knew there was a good chance of getting a better bargain after the holiday, would you buy now or wait? Most smart shoppers would head home, rest their feet, and enjoy the long weekend.
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