Daily market review Aug 2 2024 part 1 (market is grip by fear and fall across the board )

Market was clobbered left right and centre over the week, and after falling to the ground from the KO punch during Aug 1 session, the market was given extra few kicks again with a dismal Nonfarm payroll, there’s no relief for the market at all.

The nonfarm payroll report elicit all sorts of bearish emotion, legitimizing the hard landing claim from economically pessimistic camp, and creating fear among investors that Fed maybe behind the curve again this time in cutting rate, dragging down the economy growth & generating unemployment from their higher for longer rate hike. If things left uncontrolled, Fed communications and acronym department gotta work overtime to prevent their higher for longer soundbite from becoming another disastrous policy expression haunting them for the next few years ( or decades )  

But did market overreact to the fear of incoming spike in unemployment as implied by low no. in Nonfarm payroll report ?  or was this fear totally unfounded ? ( assuming the fear is only lower than expected nonfarm payroll, which if you have been following my blog, know that it’s not the only fear. )

Yes,  there are reasons to believe that the fear are blown out of proportion chiefly because of hurricane beryl, there are around 1.3 million people being displaced and it has cause a spike in temporary layoff, but was not adjusted properly by nonfarm payroll report.

Per Yardeni Quicktake dated August 2^nd, as below for your reference.

And Renaissance Macro Research mentioned that the nonfarm payroll growth is understated ( because of poor adjustment  mechanism in nonfarm payroll )

The days where you could just put your savings in into ETF in a passive manner, not dissimilar to a farmer, could be over in the some near/distant future. In the past, you could just sow what you reap according to your diligence and the weather in your harvesting region,  static and subjected to local weather/factors.  But current and the future of investment resembles sailing in the ocean, your boat will forever be moving and subjected to weather conditions in different region, there are tidal waves and vortex that could just hit you from out of nowhere.  

What are these complex forces that shape and influence the market in the modern era. Chief among which is the macro forces, for example, right now, market from other jurisdiction, Japan could render your well thought out plan obsolete. Because everything is globally connected.

2ndly, the popularity of investment products and investment behaviour from retails ( yes the retail investment/savings product that you are putting your savings in ) is changing the price behaviour of market, the ETF flow is influencing the very market that you are investing in and monitoring every now and then.

3^rd, the rise in Options add a further challenging dynamics in the pricing ( dampening the momentum / adding fuel to fire )

Before we even begin to answer the questions ( is it a good time to buy now ? what should we buy ? ) you should do an assessments on the current environment, assessing the landscape and having situational awareness is the most important skillset that every investor should aim to obtain.

Broad market overview

there are indiscriminate selling across the board. Semi the worst performers, followed by tech-heavy Nasdaq 100, losing more than 5% and 2% respectively.

Overall, Cap weighted indices performed as bad as equal weighted counterpart, Mid & small cap.

S&P 500 11 sectors overview

Discretionary , Technologies,  energy are the worst performing sectors. While Staples, utilities and real estates are the best performing sectors.

Sector performance over 1 month

S&P 500 11 sectors relative performance over 1 month period, Real estates, utilities, healthcare and staples rank among the top 4.

MOVE index

Move index spike to 112.26, courtesy for bond yield moving sharply lower. We will monitor if bond yield would break above the downtrend line, if it break above, it would not augur well for market. Conversely, if this spike fade subsequently, then market will get a relief rally.

bond price implied volatility is expected to be around 11.22% per annum. Higher MOVE points to (implied) higher bond market volatility going forward.

Bond volatility moving higher translates into more haircut to bond, in which less liquidity can be extracted from the collateral pool.

This concludes part 1 of the market review, stay tuned for part 2, which will feature more charts and indicators to help us assess the market better.

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