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The fearless market ignores perils ahead; In rare fumble, Goldman stuns Wall Street with weak trading; Fischer Expects Muted Market Response When Fed Trims Balance Sheet

Lead Stories

The fearless market ignores perils ahead
Robin Wigglesworth – Financial Times
In 1992, a Bob Dylan-loving finance professor called Robert Whaley uprooted his family from the US and moved to a tiny hamlet in bucolic Burgundy. There he spent six months laying the groundwork for the finance industry’s most popular representation of terror.
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In rare fumble, Goldman stuns Wall Street with weak trading
Reuters
Goldman Sachs Group Inc (GS.N) fell short of earnings expectations on Tuesday due to a drop in quarterly trading revenue, prompting analysts to demand explanations for underperformance in an area where the bank usually outshines rivals.
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Fischer Expects Muted Market Response When Fed Trims Balance Sheet
Rich Miller and Craig Torres – Bloomberg
Federal Reserve Vice Chairman Stanley Fischer said he doesn’t see a replay of the so-called taper tantrum of 2013 as the central bank rolls out its plan for reducing its big balance sheet.
In a speech prepared for delivery at Columbia University in New York, Fischer said that the muted response of investors so far to the emerging details of the plan suggests that the out-sized financial market moves seen four years ago probably will be avoided.
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Showdown: The Fed Vs. The Bond Market
Bob Lang – CBOE Options Hub
It’s a showdown at the ‘O.K. Corral’, with the Federal Reserve on one side and the massive bond market on the other side. They have both taken positions, dug in their heels and for the first time in a long while they are staring each other down. It’s not common we see divergences between these two factions, but that is indeed what we have currently. The stakes are high. Investors and traders are watching both sides carefully, but for now there is no clue – and that is why uncertainty is high, the volatility index is rising (one reason) and markets are on edge.
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Dow drops 150 points as Goldman Sachs and Johnson & Johnson drag index lower
Fred Imbert – CNBC
U.S. equities fell on Tuesday after Goldman Sachs shocked Wall Street by missing estimates. Investors also remained vigilant amid U.S.-North Korea tensions and the nearing of the French presidential election.
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Trump’s Signals on the Fed Are Worthless
Jonathan Bernstein – Bloomberg
With his recent reversal on Janet Yellen and monetary policy in general, smart pundits are spending a lot of energy doping out The New Trump, but as far as I can tell it’s mostly a waste of time. A normal president might settle into a regular pattern. Trump continues to bounce — seemingly randomly — between any particular policy and alternatives, including absolute opposites.
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China’s Strong GDP, Turkey’s Strongman Prez & US’s Weak Inflation
Vikram Rangala – Nadex Binary Options
With markets closed in Europe and elsewhere, US stocks rallied after the Easter weekend. China reported GDP growth and Turkey voted to grant sweeping new powers to its leader. Weak US price data cast doubt on the Fed’s next rate hike. Nevertheless, investors seem to have taken on risk.
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French election: divided markets open door to big reaction
Michael Mackenzie – Financial Times
For the third time in less than a year investors face another rendezvous with capricious voters, who may well be leading pollsters astray.
After the UK vote for Brexit and the election of Donald Trump, the first round of France’s presidential election beckons with markets at an inflection point.
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France’s Election Is 2011 Repeat for Currency Options: Chart
Luke Kawa – Bloomberg
Fears of a surprise outcome in Sunday’s French presidential election have foreign exchange options reacting in a way not seen since the European sovereign debt crisis of 2011.
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Technology

Chicago high-speed trading firms draw overseas talent – In Other News
Lynne Marek – Crain’s Chicago Business
Chicago’s high-speed trading industry is so secretive, it’s easy to overlook the worldwide magnet the city has become for the business.
Two Dutch companies, Optiver and IMC, set up shop downtown more than a decade ago and have grown to more than 200 employees each. Now, they’re expanding again.
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Strategy

Options Activity Indicates Recent Selling May Return Again Soon
Dana Lyons – ETF Daily News
After months of (well-documented) investor complacency, recent stock turbulence has begun to introduce some fear back into the market. It has been manifested in the volatility market, as we covered extensively in our Vexing Vix miniseries last week. And after last Thursday’s sharp selloff, fear has now also crept into the options market – at least for a day.
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Markets Fearing WWIII? Depends Where You’re Located
Investing.com
On April 17, 2017 volatility expert Steven Sears wrote an article in Barron’s called “Profiting From the Stock Market’s Latest Fears.” In this piece, Sears recommends that long-term investors take advantage of rising market anxieties by selling put options.
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VIX Signal Ringing for First Time In Years
Schaeffer’s Investment Research
Last week, we noted that the CBOE Volatility Index (VIX) was sitting on its second-largest year-to-date percentage gain for this point in the year, going back 10 years. As of yesterday’s five-month high of 16.28, however, the VIX had topped its 2014 high-water mark, racking up its largest January-to-mid-April gain in at least a decade, up nearly 16%, according to Schaeffer’s Quantitative Analyst Chris Prybal. For comparison, the S&P 500 Index (SPX) sports a relatively mediocre year-to-date lead of roughly 5%.
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Education

A new method for predicting volatility ‘tsunamis’
Alex Rosenberg – CNBC
Is volatility about to spike? It’s a question frequently asked by anxious investors in times of relative calm.
Now there’s a new answer.
In a recent paper entitled “Forecasting a Volatility Tsunami” that was awarded the 2017 Charles H. Dow Award from the Market Technicians Association, Andrew Thrasher argues that it’s not low volatility that presages a volatility spike, but a consistent level of volatility.
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Investors Can Profit From Volatility By Selling Puts
Ellen Chang – The Street
Selling options can help investors benefit from the volatility in the market and mitigate the risk in timing the price of the stock.
Instead of buying options, selling them might be a better way to hedge against volatility, said Ron McCoy, a portfolio manager of the LOWS fund (Levered Options Writing Strategy) on Covestor, the online investing company and chief investment officer at Freedom Capital Advisors in Winter Garden, Fla.
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Events

Global Finance Forum: Capital Markets, Growth & the Economy of Tomorrow
Press Release – FIA
Leading financial trade associations today announced the agenda and speaking line-up for the first annual Global Finance Forum hosted on the occasion of IMF-World Bank Spring Meetings. The open-press event will bring together high-level politicians and regulators from the U.S. and European Union to offer their thoughts on critical global economic issues, particularly those with a measurable influence on capital markets, including the EU’s Capital Markets Union initiative and Brexit, among others.
When: Thursday, 20 April 2017, 8:00 am – 10:30 am ET
Where: Ritz Carlton, West End, 1150 22nd Street NW, Washington, DC
/goo.gl/QlQNxl

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About Author

Bergstrom is chief information officer of John J. Lothian & Co. He edits MarketsWiki and JLN Options.