If history is any guide the market tends to rally at the end of the quarter…as institutional investors mark-up their favorite picks. Thus, with only two days left in the first quarter, maybe it should be no surprise that the market is holding up pretty well in the face of the Archegos debacle.
(Don’t listen to those people who keep saying that the stock market “should” see a sell-off at the end of a quarter. They say this will happen because of higher interest rates…and thus some institutional investors will have to reweight their holdings by selling stocks & buying bonds at the end of the quarter. It sounds good theoretically, but since long-term rates bottomed & started rising a year ago, the market has only sold-off once over the last five days of trading. In fact, the average return of the past 4 quarter-end examples has been a GAIN of 2.5% for the S&P 500 index.)
Of course, there are plenty of reasons why the market could still fall by tomorrow’s close. On top of the Archegos situation, we have rising Covid cases around the world…and a rise in long-term interest rates to their highest levels for this move. However, “quarter-end” factors tend to be bullish, not bearish.
Anyway, most of the stock market held up very well yesterday in the face of all news surrounding the reported losses at Archegos, Credit Suisse, Nomura, etc. We worry that this type of action in the face of a bearish development is a sign of a very high level of complacency in the markets…but we have to admit that could actually mean that the markets and economy are strong enough to hold-up under these conditions.
As you might gather from our recent comments, we think it’s the former rather than the ...