Tuesday, September 24, 2019

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...and that same word defines the stock market all the time

“The macro environment continues to be defined by uncertainty,” Goldman Sachs’ top stock market strategist David Kostin said in his latest note to clients (emphasis added).

And he’s right. In recent days, we’ve seen oil prices spike after a drone attack, funds rapidly rotate out of one sector and into another, the Fed cut rates, something called the repo market go haywire... yeah, that sure feels like “uncertainty.”

But isn’t it always the case that the markets are defined by uncertainty? After all, uncertainty characterizes the risk investors take when they go long stocks. It’s that uncertainty that commands a premium, which is why the rewards of investing in stocks tend to be higher than risk-free assets.

I’m reminded of a comment made three years ago by Bank of America Merrill Lynch economist Ethan Harris: “It’s always something.” Back then, Harris pointed to turmoil in Europe, the threat of Britain exiting from the euro area, and anti-trade rhetoric picking up in D.C. Not only is there always something to be worried about, but ironically the stuff that was making investors nervous back then is very similar to what’s making investors nervous today. Though the S&P 500 (^GSPC) was trading at about 2,000 back then and it’s at about 3,000 today.

I think my favorite musing on the permanence of uncertainty came during the darkest days of the financial crisis. It was Warren Buffett for The New York Times op-ed section. When the S&P was trading at about 1,000.

“Over the long term, the stock market news will be good,” Buffett said. “In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.”

Buffett’s reflection is worth remembering. Because not only is there the risk of bad things happening, but worse, bad things actually happen. And yet time and time again, the markets sort it all out.

By Sam Ro, managing editor. Follow him at @SamRo

What to watch today

Earnings

• 4:15 p.m. ET: Nike (NKE) is expected to report adjusted earnings of 70 cents per share on $10.44 billion in revenue during its fiscal first quarter.

Economy

• 9 a.m. ET: FHFA House Price Index month-on-month, July (0.3% expected, 0.2% in June)

• 9am: S&P CoreLogic home price CS 20-City MoM SA, est. 0.1%, prior 0.04%; S&P CoreLogic CS 20-City YoY NSA, est. 2.1%, prior 2.13%; S&P CoreLogic CS 20-City NSA Index, prior 217.7; S&P CoreLogic CS US HPI YoY NSA, est. 2.9%, prior 3.13%

• 10 a.m. ET: Richmond Fed Manufacturing Index, September (1 expected, 1 in August)

• 10 a.m. ET: Conference Board Consumer Confidence, September (133.0 expected, 135.1 in August)