Doug Noland: The VIX and the Scheme

wallstreetexaminer.com / by Doug Noland / May 13, 2017

There was little market reaction to Emanuel Macron’s widely-anticipated big victory in the French presidential election. The euro actually retreated somewhat, in a “sell the news” dynamic. European equities ended the week mixed. European bonds were somewhat more interesting. Bund yields declined three bps, while Italian yields jumped nine bps.

“Risk On/Risk Off” analysis was rather inconclusive this week, though there were some indications of waning risk embracement. U.S. equites came under modest selling pressure. The S&P500 declined 0.3%, while the broader indices were weaker. The midcaps fell 1.1%, and the small cap Russell 2000 declined 1.0%. With Macy’s earnings badly missing estimates, retail stocks came under heavy selling pressure. This sector has given the bears a bit of life. Financial stocks were also under notable pressure. The banks (BKX) fell 1.3% and the broker/dealers (XBD) lost 1.5%. The Transports were hit 2.1%.

The general market was resilient in the face of ongoing Washington dysfunction. It’s not that surprising that President Trump’s firing of FBI Director Comey had a much greater impact within the media than in the markets. It’s my view that markets are more dominated by liquidity flows and speculative dynamics than the Trump agenda.

As for speculative dynamics, the Nasdaq 100 (NDX) and Morgan Stanley High Tech Index (MSH) traded at record highs this week, while the Semiconductors (SOX) are within striking distance. For the week, the NDX gained 0.7% (up 16.9% y-t-d), the MSH rose 0.6% (up 19.6%), and Semiconductors surged 3.4% (up 15.3%).

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