Such a fine line ... between optimism and pessimism. Such a fine line ... between "risk on" and "risk off", such a fine line between love and hate, victory and defeat. Financial markets expressed a certain level of fear on Tuesday. Not irrational fear, but some caution, I think. The broader large-cap equity indices gave up 3% or more, the small-to-mid-caps a bit less. Does that tell us something?
Let's look at sector performance. All eleven S&P 500 sectors traded lower for the session. Those that declined the least? The top four were the REITs, Utilities, Staples (all defensive) and Energy. Energy? What the? Was it not a complete collapse in oil markets that forced this shift in perception upon traders/investors to begin with?
Hmm... We do understand that commodity prices in energy markets are as much about demand as anything else. The dwindling of available storage is merely a symptom of a global/domestic economy that has been turned off. Some U.S. states -- Georgia comes to mind, though there are others -- look to ease back on this shut-down, while we all brace for what headlines might follow this easing of social restrictions in order to allow for some natural transaction to take place. Don't think folks are scared?
You have seen what has happened to the longer end of the U.S. Treasury yield curve this week, have you not? They're scared. Scared that what we now see in oil markets becomes emblematic of an elongated, less-robust economic recovery. Who can blame them? The uncertainty, and there is really nothing but, will lead to the choppiest, most volatile market environment of our lifetimes. This I believe.
Wear a helmet if you have to. But be forewarned. These markets are headline driven. The underlying news is destabilizing enough on its own. Then headlines are written to intentionally draw more attention. To figure out what the bigger money is doing, I do what I always do. Just follow the trail to see what I can see.