Bad News

Markets swoon and again comes a hunt for why, because news offered no warning. The news has bad data, which makes for bad news. ModernIR warned. More shortly.

Meanwhile in Steamboat Springs the slopes are painted the palette of Thanksgiving, and a road leads to paradise.

We were in New York with the United Nations last week. Well, not with them. Navigating around them. On foot. We walked fifteen miles over two days of meetings. Trump Tower looked like a siege camp, loaded dump trucks lining the front and frantic 5th Avenue closed to traffic and so quiet you could stroll to the middle and snap a photo.

Wednesday we railed with Amtrak into Washington DC’s Union Station, and Thursday and Friday we trooped with the NIRI contingent up Capitol Hill. Strange time. The halls of congressional buildings Longworth and Rayburn vibrated in partisan division.

NIRI is flexing muscle, however. We had 50 people scattered through more than 30 legislative visits, and the SEC told us, “You’ve brought an impressive number!”

Numbers matter.  We keep that up and we might change the world. So next year, come along! NIRI CEO Gary LaBranche and team deserve all credit for ratcheting up our reach to regulators and legislators.

Now to the data that makes the news look bad. Last week in our piece called Curtains, we explained how market structure leads headlines around by the nose. Yes, news may be the feather that tilts a domino. But it’s not The Big Why.

Structural conditions must first permit daily chatter to move markets. Thus news one day is “stocks are down on trade fears,” and when they rebound as quickly, they’re “up on easing trade fears.”

We’re told the Dow Industrials dropped 340 points yesterday because the ISM Manufacturing Index dipped to a decade low. That index has been falling for months and slipped to contraction in late August. Yet the S&P 500 rose last month.

Anyone can check historical data. The ISM Index routinely bounced from negative (more than now) to positive during the go-go manufacturing days of the 1950s when the USA was over 50% of global output. It was lower routinely in the booming 1980s and 1990s. It was lower in the post-Internet-bubble economic high.

Lesson? Manufacturing moves in cycles. Maybe the data mean the cycle is shortening, as it did in past boom periods. You can see the long-range data here, courtesy of Quandl.

There’s rising and worrisome repetition of news that’s wrong about what’s behind market-moves. Many trust it for reasons, policy, direction. Decisions thus lack footing.

A year ago, ModernIR warned clients about collapsing ETF data in latter September related to the creation of the new Communication Services sector. The market rolled over. Headlines blamed sudden slowing global growth.

Since that headline splashed over the globe, US stocks have posted the best three quarters since 1997. But not before pundits blamed the 20% drop last December on impending recession and monetary policy.

Stocks surged in January 2019, regaining all the media blamed on what never happened.

Why don’t we expect more from the people informing capital markets? Shouldn’t they know market structure? If you get our Sector Insights reports (ask us how), you know what the data said could happen.

For the week ended September 27, selling outpaced buying across all eleven sectors two-to-one. Not a single sector had net buying. Staples, the best performer with gains of 2.7%, got them on outliers only. The sector had one buying day, four selling days, last week.

We asked: Could all that selling land with a splat in early October?

Remember, liquidity is so paltry – now 20% worse than in Sep 2018 – that what got on the elevator (so to speak) last week got off this week, leading the news, which watches the wrong data, to incorrect conclusions.

We saw a bigger behavioral change for ETFs last week than in late Sep 2018. I’ll ask again: If the data signal selling, or buying, and the data predicts where news reacts, why isn’t everyone, especially pundits, watching that data?

Are you?

If you’ve never seen market structure analytics, ask us. It’s the vital predictive signal now. That’s good news rather than bad.