While we await the ECB press conference I thought I'd take a quick spin through various risk markets pre magic wand waving measures. In equities we have a had a huge divergence between the S&P 500 (large caps) and Russell 2000 (small caps). A week ago at this time the S&P 500 was in a precarious position and down 0.4% in premarket. Then Draghi's comments hit the wires premarket and …
I wrote this post often late in the winter/early spring – the S&P 500/DJIA do ok, but small caps smacked.
As I type those major indexes are down about 0.1% while the Russell 2000 is down 1.3%. Two different worlds we are living in.
EDIT 4 PM – The Russell finished down nearly 2%! Even as it looked like a simple day at the park on the senior indexes.
Markets are selling off on the lack of "new" support but nothing major. Within seconds of the announcement I am sure most "investors" began whining for Jackson Hole, Wyoming and now they can start the whole process over of demanding QE. On to Draghi.
If you go by the old rules this market doesn't make much sense. Today we had another weak ISM Manufacturing print yet the strongest stocks are pro cyclical. Steel, coal, metals/mining, and oil services are the leadership today. From a rotation standpoint that is a positive step. From a sense standpoint it seems to be entirely based on monetary easing and little in the 'real economy'.
It is very difficult to reconcile some things you see in the market today with the 'handbook'. The belief in monetary easing at the zero bound on the economy is unending although we see a lack of evidence of that in reality. While it has some form of effect on animal spirits and hence asset prices, there does not appear much benefit in our actual economic lives. Trillions of global easing has given us a recession in Europe and "meh" economy in the U.S. – yet algos or humans or whomever continue to bid up groups on the same belief of recovery (or at least asset manipulation). …
Interesting piece in Reuters on Geithner's trip to Europe. In it, the inference is there is action coming out of Europe but it won't be immediate. If so, that could splash some water on those expecting a bazooka tomorrow morning from the ECB. We'll see.