(Bloomberg) -- First the longs got burned. And then the shorts got squeezed.
Of course, that’s what happens in markets. But it’s been forever -- 2 1/2 years, by one measure -- since the S&P 500 Index has hosted this much drama. For three straight days, the benchmark for $29 trillion in equities has moved more than 2 percent, sinking to the worst week in two years before Monday’s stunning reversal.
Net of everything, it’s a blip: stocks are near where they were on Valentine’s Day, a quarter of the way back from February’s lows. But for anyone forced to make bets in this market or, worse, divine a message from its swings, the last two weeks have been a gut check -- a reminder of how hard it is to make money trading equities.
"Jump first, ask later and show no fear,” said Stephen Innes, head of trading for Asia-Pacific at Oanda Corp. in Singapore. “This is what we get paid for.”
For an example of the challenge, look at Facebook Inc., rattled again Monday when an analyst raised concern about an advertising pullback and the FTC confirmed it’s investigating privacy practices. Down 10 percent in February and headed for its worst month in four years, the stock turned on a dime in the middle of the day and somehow erased a loss that had earlier swelled to 7 percent.
It was the same story in the broader market -- without the morning trauma. U.S. equities snapped back from the biggest weekly rout in two years, with major benchmarks climbing more than 2.7 percent on signs that an escalation of trade tensions was beginning to ease. Chipmakers and banks led gains as the S&P 500 Index posted its biggest one-day jump since August 2015, while 20 stocks climbed for each that fell.
Asian markets followed. Japan’s Topix index climbed 2.7 percent, pushing a regional MSCI gauge up 1.4 percent, while futures on the S&P 500 climbed. It’s all quite a change from the past two years, when equities barely wavered on their way to a 45 percent gain.
“It scares out nervous money that probably should be staying there,” said Walter “Bucky” Hellwig, Birmingham, Alabama-based senior vice president at BB&T Wealth Management, who helps oversee about $17 billion. “The overall environment for stocks is still attractive but there are things that are coming into play that we haven’t seen for a couple years -- trade discussions through tariffs and a new Fed chairman who the market doesn’t have a handle on.”
Explaining market psychology is never easy but right now it’s almost impossible. Last week, nothing could console traders as they fixated on protectionist bluster and signs the economy was stalling out. Today there was nothing they wouldn’t embrace: everything from rising earnings to the sanctity of the S&P 500’s moving average was sowing cheer.
“Most people were negative last week, we were no exception,” said Michael Cuggino, president and portfolio manager at the Permanent Portfolio Family of Funds in San Francisco. “Worried about our portfolios? No. People are starting to realize that the market conditions that drove the market the last few years are changing, and you don’t want to be the last one in the room.”
As always, President Donald Trump was watching. After a week in which rising trade tensions erased $2 trillion from global stocks, his morning tweets struck a combative tone. “So much Fake News,” read one. Said another: “The economy is looking really good,” and, “The underlying strength of companies has perhaps never been better.”
After the close, two words: “Great news!"
“It takes a long time, but training yourself and clients to love volatility and see it as a necessary and helpful thing to long term wealth creation is my focus,” said Greg Dean, a fund manager who oversees $3 billion at Cambridge Global Asset Management in Toronto. “I try to get better at those things each day. It’s a process.”
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