What happened in the market today

Looking at the markets fall, there are three negative events that stand out as possible explanations: The ash cloud from Iceland’s volcano is still spreading over Europe, the University of Michigan released a lower than expected consumer confidence number and the SEC suing is Goldman Sachs (Suspiciously, on a day when there is news about how they ignored Allen Sanford’s Fraud in 1997).

1. The Ash Cloud: This seems back and should theoretically lower consumer spending and oil consumption temporarily, but the market didn’t really distinguish between European and US stocks today.

Image001
2. Consumer confidence surprised on the downside at 69.5 instead of an expected 75.0 and housing starts surprised on the upside. Here is a chart showing how little the U. of Michigan Confidence number seems to matter:

Image003

Lacking historical minutely data, I looked at the market close to market open futures data to determine if the U. of Michigan numbers have any market impact:

Image004
 

The impact looks rather negligible, perhaps because there are other more timely indicators of consumer confidence and divergences in this survey relative to expectations is as likely as not to noise. At the very least, any signal seems to be drowned out by the noise from earnings releases or other market data.

3. Today Goldman Sachs’s market capitalization fell from over 100 billion dollars to a little over 87 billion dollars on news that the SEC is suing them for fraud related to how they represented CDOs. No one thinks that Goldman is going to lose 13 billion dollars in the lawsuit, but because of the chance that it may be a tip of the iceberg type of event or that this negative news will hurt their credibility and therefore their business the market’s move may not be too excessive. Other financial stocks fell in sympathy, along will most other risk assets, either because of fears that these banks did the same, hedging by Goldman who knew of the lawsuit ahead of time, or because their regulation will be harsher if financial companies are perceived in a more negative light.

Image007

I’m glad that I don’t have to explain market moves every day, as usually “more buyers than sellers” or vice versa makes more sense than the majority of news stories coming out about market drivers.

About

I studied Bioengineering at the University of California at San Diego. While there I served as a trustee on the investment committee of the UCSD Student Foundation, a group that manages an endowment to fund scholarships. While in college I applied my interest in finance and economics by working as a summer associate at Clarium Capital Management, working part time my senior year, and joining full time when I graduated in 2006, staying there through August 2010. I am currently working as a portfolio manager at another global macro hedge-fund in the Presidio (And blogging about more directly market related ideas at their restricted blog). I’ve been focusing on quantitative finance, currencies, commodities, the interplay between finance and politics, demography and other long term trends.

Disclaimer: You shouldn’t consider anything on this site to be a recommendation or solicitation to buy, sell, or hold any securities or commodities. I’m not offering you investment advice. I or the company I work for may hold positions in securities that I mention.