Senate Hearings, UK Politics and Tech Sector Fuel VIX-Peruzzi’s Perch
June 9, 2017   //   by Mischler MarCom   //   Equities Market Commentary  

Peruzzi’s Perch June 09 2017-Comey Senate Hearings, Brexit Breakdown and Tech Turn-Down

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Larry Peruzzi, Managing Director

This week investors were largely on the sidelines awaiting for Thursday’s big three events. Thursday came and the ECB left rates and asset purchase target unchanged and omitted any forward guidance. The Comey Senate testimony while dramatic did not offer a smoking gun and did little to affect markets. U.S. stocks ended Thursday little changed, while Treasuries fell and the dollar advanced as equity indices swung between gain and losses.  Trading volumes returned to their ADV on Thursday after spending the first half of the week down about 15% from their ADV. Volatility, as measured by the VIX index, creeped up going into Thursday, but by week’s end was back below 10 to all-time lows. The bulk of volatility seems to be confined to the Foreign exchange and oil markets. Oil closed out the week down 4% and the U.S dollar rose 1%. The Pond sterling lost 2% on Friday after the U.K’s ruling conservative party failed to secure a 326 seat ruling majority. While investors waited for Thursday, we saw mostly in-line April Factory and durable goods orders on Monday. Wednesday we saw a rise in mortgage applications. The Fed is in a quiet period ahead of their next meeting on Wednesday 6/14. So overall we saw a quiet state to the week, an interesting Thursday and then a return to recent trading patterns on Friday as Comey, the ECB and the U.K election did little to deter the markets slow but steady rise. The DOW, S&P 500 and NASDAQ all were trading at all-time highs early on Friday with Tesla and NVIDIA both had good weeks (+10.5% and +14.5% respectfully) as analyst raised targets on the stocks.  Nordstrom gained 7% for the week on speculation of a management buyout.  Then Tech experience a reversal that we have not seen in quite some time. Apple, Facebook, Amazon.com, NVIDIA and high-flying chip shares stocks plunged amid a Goldman note that warned about underestimating risks in large-cap tech and after Citron Research warned about“frenzied casino action” in Nvidia trading. The Philadelphia Semiconductor Index declined as much as 3.6% after reaching an almost 17-year high on Thursday. Just as we thought we had the market understood stretched valuations and analyst warnings caused a complete technical reversal. The VIX index rose 20% from its all-time low volume increased and profit takers lined up.

Next week’s big event comes on Wednesday with the FED’s June meeting and rate decision. A 25 bps hike from 1% to 1.25% is widely expected. In fact markets and Fed fund futures have priced in a 95% probability of a 25 bps hike as of Friday.  So with the hike already priced in investors will comb through the accompanying statements but even there, as on past statements, we have seen little in market moving comments. We do not expect to see any irrational exuberance statements coming from the Fed any time soon.

The dilemma is that many now expect this to be the last hike for several months.  Recent inflation indicators seem to be showing an easing of inflation. The Fed has also kept the level of asset purchases mostly static. Analyst expect the Fed’s current pace of unwinding its balance sheet, together with low overnight rates, will act in maintaining the relatively flat yield curve through the summer.  In addition to the FOMC meeting on Wednesday, we get May PPI data on Tuesday, May CPI data and Retail sales on Wednesday, May import/export prices, industrial production/capacity utilization on Thursday, and May housing starts/building permits and Michigan sentiment on Friday. We currently do not expect any of this data to show any inflationary pressures.  

Also on the slate is a bevy of broker conferences: JPMorgan 7th Annual Cloud & Beyond Conference, 6/13, in NY ·Morgan Stanley Financials Conference, 6/13-6/14, in NY ·Citigroup Industrials Conference, 6/13-6/14, in Boston · Goldman Sach’s 38th Annual Global Healthcare Conference, 6/13-6/14, in CA ·Piper 37th Annual Consumer Conference, 6/13-6/14, in NY ·William Blair Annual Growth Stock Conference, 6/13-6/15, in Chicago. We should be seeing some company specific news trickle out of these conferences. Trading wise we have seen little in major risk on/risk off trades up until mid-day Friday. Most volume was from moderate position/portfolio maintenance trading coupled with the occasional fundamental trigger trade. The Tech reversal on Friday started a sector reversal as investors sold high flying tech and growth stock and started to buy energy financial stocks. These type of reversals and sell offs always cause some concerns when they occur on Fridays as investors tend to return on weekends and sell on Mondays.

What politics, elections, and senate testimonies could not do, a couple of notes highlighting stretched valuations did.  Stay tune on Monday as what was looking like a tame week now takes on added importance.

 

 

 

Larry Peruzzi

Managing Director International Trading

Mischler Financial Group

Investment Banking | Institutional Brokerage

Ph:   1-617-420-8472 | Cell: 1-617-997-6318

745 Atlantic Ave, Suite 902, Boston MA 02111

www.mischlerfinancial.com

Larry Peruzzi is a 20 yr global trading markets veteran and brings a unique perspective to global equities market commentary via Mischler Financial Group, the securities industry’s oldest minority broker-dealer owned and operated by service-disabled veterans.  Larry’s experience  and best execution perspective stems from his sitting on ‘both sides of the aisle.’  For more than half of Larry’s career, he ran buy-side trading desks for Standish Mellon and thereafter, The Boston Company. In both of those roles, Larry was responsible for implementing and managing international equities trade execution. Larry’s perspectives are frequently cited by the leading financial news publishers, including The Wall Street Journal, Bloomberg LP and Reuters

Mischler End of Week Equities Market Commentary via Peruzzi’s Perch June 09 2017 end-of-week edition is distributed via email to institutional investment managers and Fortune Treasury clients of veteran-owned broker-dealer Mischler Financial Group, the investment industry’s oldest  minority broker-dealer owned and operated by Service-Disabled Veterans.

Peruzzi’s Perch is a weekly synopsis of Everything Equities as seen from the perch of Mischler Financial Group’s International Equities Desk. Cited by Wall Street Letter in each of 2014, 2015 and 2016 for “Best Research / Broker-Dealer”, Peruzzi’s Perch is one of four distinctive content pieces produced by Mischler Financial Group

Senate Hearings, UK Politics and Tech Sector Fuel VIX-Peruzzi’s Perch