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T3’s Market Wrap: Just Another Fed Day


The minutes from last month’s Fed meeting were released today.

And the market didn’t seem to care, which wasn’t a surprise because the market doesn’t seem to care much about anything these days.

The major indices finished roughly flat, with the Dow Jones Industrial Average just barely making a new record high. The SPX and Nasdaq composite finished up fractionally.

While traders have been viewing the Fed as hawkish as of late, the just-released minutes paint a slightly different picture.

Officials said “many participants expressed concern that the low inflation readings this year might reflect not only transitory factors, but also the influence of developments that could prove more persistent.”

This is a reminder that the inflation picture is a big mystery right now.

The minutes also showed that the Fed expects third-quarter economic growth “to be held down by the severe disruptions caused by the storms but to rebound beginning in the fourth quarter as rebuilding got under way and economic activity in the affected areas resumed.”

President Trump’s economic policies are also a bit of a wild card since we don’t have much clarity on just what kind of tax cuts will be passed, and how they’ll impact the economy.

The market’s now showing much of a reaction. The dollar dipped a bit and equities have softened, but it’s not anything to write home about.

Gold, however, had a nice pop and nearly made it to positive territory. Meanwhile, the Vaneck Vectors Gold Miners ETF (GDX) put up a pretty decent gain.

Bank stocks are selling off, with notable weakness in the volatile regional names.

The VIX managed to make a low of 9.88 this afternoon, marking the 18th straight day with a sub-10 print in the VIX.

I’ve been beating these stats like a drum, but this really is remarkable. Since the CBOE changed the VIX calculation methodology in October 2014, the VIX has been under 10 on only 56 days.

So to have 18 in a row is truly out of this world.

Meanwhile, prior to Wednesday, VIX closed under 10 in 11 of the last 15 trading days.

This is another astounding fact, since, we’ve had just 29 sub-10 VIX closes since October 2014.

Now, one interesting story that’s going around today is Vanguard approaching $5 trillion in assets as investors increasingly allocate assets towards passive ETF’s.

Lots of folks think that it’s a sign of a bubble, but I think it’s a sign of people being rational.

Passive ETF’s give you better returns with lower expenses. They’re simply superior to actively managed funds, and that’s why people are switching.

Now, I do think we will run into problems with ETF’s dealing in illiquid securities like high-yield bonds and leveraged loans. When people dump ETF’s in those areas, there will be some major market disclocations.

But in equities, I don’t think there’s much difference between ETF’s and actively managed funds.

When things get bad, people sell securities, period. I’m not convinced the delivery method matters all that much.

However, there is a chance that in a financial crisis, traders could view ETF as inherently problematic, creating a self-fulfilling prophecy on the way down.

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