Punch-Drunk Traders Stop Guessing as Trump Runs Markets Ragged
(Bloomberg) -- When the first Trump tweets hit on Sunday, Paul Nolte knew the peaceful days were behind him in the stock market.
“Have you ever seen the movie ‘Airplane’? It was just a bad week to stop sniffing glue,” said the 56-year-old portfolio manager for Kingsview Asset Management in Chicago. “When that got announced, it was like, well, this is going to be a volatile week.”
Particularly next to the calm that has prevailed in 2019. After rising for 54 of the first 85 days, the S&P 500 slid for four straight sessions before a reprieve on Friday. Swings in U.S. futures were 77% wider than the average this year. Yep -- President Donald Trump was back to waging a trade war on Twitter, making lives interesting in the equity class.
For investors who were already unsure whether to ride this rally or run from it, the last five days have been a wake-up call. Not a tipping point, necessarily -- most said they were too shocked by the torrent of headlines to do much -- but it hasn’t made the decisions any easier. How will tariffs influence corporate earnings? The economy? Is Trump pursuing sound policy, or just campaigning?
“If I were younger and looking at a short-term time horizon, I’d be pulling my hair out,” said Jack Ablin, Chief Investment Officer at Cresset Wealth Advisers. “But I hate to say, after decades of being in the business, Trump’s Twitter is part of my my strategy. You look at income statements, balance sheets, and then you check his Twitter account.”
It’s hard to know who will end up benefiting, traders said. All the game-theory machinations between the U.S. and China are like watching two baseball teams pin their future on a blockbuster trade, said Ed Keon, portfolio manager for QMA, a quantitative firm in Newark, New Jersey.
“It’s ‘Curse of the Bambino’ time again -- who will win and who will lose? We are in this huge rivalry, and no one is going to give up its ambitions,” he said. For him it’s meant: “Here I am in the office, doing some analysis and crunching numbers. It will get better, then it will get worse, then it will get better, then it will get worse.”
Volatility keeps landing at inopportune times. Prices swing wildly overnight. Bloomberg strategist Cameron Crise calculated that while S&P 500 futures were positive Monday through Thursday during Europe and U.S. hours, they plunged an average of 0.6% when Asia was at the controls.
That may be fine with Trump. As frantic as things were in U.S. markets this week, they had nothing on China, where the Shanghai Composite Index plunged 5.6% on Monday and by more than 1% on Wednesday and Thursday. For the S&P 500, while it was the worst five-day drop of the year, the whole loss was only about half what China notched to start the week.
Traders are rarely stingy with opinions but are now more apt to highlight the futility of getting wedded to a view. While every statement and tweet is parsed and virtually all of them move markets, nobody can tell what’s policy and what’s a bluff.
“Anybody that thinks that they can divine what’s going to happen here, that’s just guessing,” said Liz Ann Sonders, chief investment strategist at Charles Schwab. “Maybe it’s worth the risk of being able to pat yourself on the back and say, ‘I nailed that,’ but we’re not going to play that game.”
At QMA, Keon’s computers struggle to make sense of salvos in a trade war he sees little precedent for. He’s happy the firm’s strategies still incorporate a human touch.
“How do you teach a quantitative model to understand Trump’s tweets?” he said. “How do you assess human interaction that’s this complex? It’s helpful to have a quantitative spine, but there are some things that quants just don’t understand. And it’s very difficult to model.”
Rather than jump in front of trains, Nolte of Kingsview concentrates on data. “I try to focus more on that and less on the 2 a.m. tweets or the five tweets at 6 o’clock and all the rest of that crap. Thank god I’m not on Twitter. Holy cow, that’s work.”
©2019 Bloomberg L.P.