Record Calm Stock Market Gets A Shock

Via Dana Lyons" Tumblr,

After a record run of muted movement, will recent volatility send negative shock waves through stock market?

The recent uptick in stock volatility has some investors on edge (OK, it is mostly just financial news editors on edge). The truth is, while volatility over the past week has seen an increase, it is not all that far away from the historical norm. Last Thursday through Monday, for example, the Dow Jones Industrial Average (DJIA) experienced 3 straight “volatile” days, with daily ranges of between 1% and 1.6% on all 3 days. Looking historically, however, we find that the average daily range in the DJIA over the last 90 years is 1.6%. Even during the current bull market since 2009, the average range is 1.08%. Thus, the recent action should hardly be characterized as volatile.

The reason it perhaps seems so tumultuous is because we are emerging from a long stretch of calm in the market – record calm, at that. Prior to Thursday, the DJIA had gone 72 days without experiencing a daily range as wide as 1%. If that sounds like a long stretch, it’s because it is a record. In fact, the record prior to this recent streak was just 49 days in a run that ended in late February of this year. And prior to 2016, the record going back to 1928, according to our database, was a mere 32-day streak back in 1944 – less than half the recent streak.

Furthermore, historically, there have been just 16 streaks that have lasted as long as 21 days, i.e., 1 month.

Interestingly, this recent streak is the first of any of the 16 that saw 3 straight 1% daily ranges immediately following its culmination. So is mean-reversion starting to rear its volatile head here following the record calm? And is there a nefarious message to the sudden uptick in volatility?

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US PMIs Tumble To 4-Month Lows, Signal Just 2% GDP Growth

After reassuringly positive Eurozone PMIs, US Manufacturing and Services disapointed with the composite PMI slumping to 5-month lows in November.

• Flash U.S. Composite Output Index at 54.6 (55.2 in October). 4-month low.

• Flash U.S. Services Business Activity Index at 54.7 (55.3 in October). 4-month low.


• Flash U.S. Manufacturing PMI at 53.8 (54.6 in October). 2-month low.


• Flash U.S. Manufacturing Output Index at 54.3 (54.6 in October). 2-month low.

Commenting on the flash PMI data, Chris Williamson, Chief Business Economist at IHS Markit said:

“US businesses reported another month of solid growth in November, putting the economy on course for a reasonable, though by no means stellar, fourth quarter.

 

Current PMI readings are broadly consistent with GDP growing at an annualised rate of just over 2%.

 

 

“There was also good news on hiring, with a slight uptick in employment growth meaning the surveys are indicating non-farm payroll growth of just over 200,000 in November.

 

“Both input costs and selling price inflation picked up, suggesting the upturn is feeding though to higher price pressures, though some of the manufacturing price hikes were attributable to the short-term effects of the hurricane-related supply chain disruptions.

 

“An upturn in new order inflows means we can expect a strong end to the year, though prospects for 2018 remain more mixed. Although expectations about the year ahead slipped lower in the service sector, future optimism hit a two-year high in manufacturing, suggesting the goods-producing sector may start to make a stronger contribution to the economy in coming months.”

This Is The Worst Year For US Construction Spending Since 2010

Those construction numbers don"t account for the massive spending on home renovations. Home Depot is killing it:

"Home Depot reported earnings of $2.25 a share, compared with a forecast profit of $2.22 per share.

Revenue was $28.11 billion versus an estimate of $27.84 billion.

Same-store sales climbed 6.3 percent, better than the expected 4.9 percent growth."

Folks aren"t selling their houses and buying new ones. They are renovating their homes and staying in place. HGTV could be hurting new home builders like Amazon is hurting stick and brick shopping malls. There is a new kind of economy, and some of the biggest players of the old economy will either have to reinvent themselves, or they will be cut out altogether. And, by the way, after two major hurricanes and lumber prices up over 40% in two year, building new houses will just become too expensive for most folks to afford.

You know what they say about divorce, "sometimes it"s just cheaper to keep her". Well, the same could be said about divorcing our old houses.