Beach season is done—time to get back to the markets: trader
By Keith Bliss of Cuttone & Co.
August is historically the slowest trading month of the year, but this year’s edition will go down as one of the slowest and uneventful in decades. The major indexes have barely budged since the beginning of the month, and volumes have been nothing short of depressing.
The de facto standard measure of implied volatility in the markets – the CBOE VIX – had been anchored below 13 since the beginning of July (the lowest readings in a year) and only recently broke above 14. An realized volatility measures are even lower.
Some of this has to do with seasonal trends, but much of the slowness can be attributed to a market “Waiting for Godot.” In this metaphorical version of Beckett’s play, the part of Godot will be played by the inimitable Federal Open Market Committee and its leader, Janet Yellen.
It has become tiresome to endlessly discuss the influence of the Fed (and to a lesser extent the ECB, BOE, BOJ and PBOC), but to ignore this issue would be to ignore reality. This is the market we are in, and setting up the trade to compensate for this is essential. To be sure, the markets will still spasm every so often on some news, or macro data point, but it’s all about the Fed and its “Fedspeak” at the moment.
But the Fed is now attempting to wake the market up from its outsized summer slumber. It’s notable that many of Yellen’s generals and lieutenants have lately been jawboning the market with notions of tight labor markets and a groundswell of inflation. Yellen herself said nothing today in terms of timing but made it clear that, if current trends continue, there will be an eventual rate hike.
The coordinated effort, of course, is meant to lay the foundation for a potential year-end rate increase (regardless of one’s viewpoint on the data); and this version of the FOMC does not like to surprise the markets. These trial balloons, and perhaps Yellen’s speech, are meant to wake us up from the lazy summer and pay attention because change is coming sometime.
The Fed still needs to be careful, however, as we are about to enter the two most volatile months of the trading calendar, and the US election could throw curve balls every other week. Beach season is done. Time to go back to school. Time to wake up.
