Big banks reported this week, posting record first-quarter trading profits. Buy-and-hold money didn’t drive them.   

We’re told by financial advisors not to trade. Buy, and hold. Don’t time the market. Sell to avoid downside and you’ll miss the market’s biggest rebounds, say the statistics.

Yet banks were apparently helping clients do the opposite. Now, what happened in April wasn’t in those results. We’ll see if something or someone broke. 

If you missed it, booming volume benefited the government too.  The SEC charges what are called Section 31 fees.  Dodd-Frank legislation passed in 2010 changed the way the SEC is funded, shifting proceeds from stock-offerings, repurchases and mergers to the Treasury General Fund.

The SEC thus leans on Section 31 fees. The agency said from May 14 forward to the end of the fiscal year the fee will be zero. The SEC will have met its funding target because money in the market is doing anything and everything but buying and holding.

You can see it in your own top 25 holders, chances are, public companies.  How many large holders are listed as put/call positions?  Citadel, Susquehanna and Jane Street, the biggest market-makers of equities, options and ETFs, are among the 25 largest holders of US equities now. With investment horizons of fractions of seconds.

Talk about frenetic activity.  To land among the biggest owners when you’re trying to own nothing by day’s end speaks to the awesome size of the market in short-term trading.

Goldman Sachs, Morgan Stanley, JP Morgan, Citi, Bank of America, all of which had smashing results this week, are big participants in those markets too. A lot of that activity is ETFs, which rely on “market makers” to keep them aligned with a basket of stocks. 

It might be information they’d prefer people didn’t know, but we have it on good authority that Goldman Sachs was Fidelity’s only ETF authorized participant. This was years ago and it might well have changed by now.

Speaking of Passive Investment, have you seen the movie? Dimensional Fund Advisors, whose founder David Booth gave the business school at the University of Chicago its name, enlisted an Academy Award winner to tell the story. So to speak.

What’s observable everywhere is that ETFs, statistical samples of equities, and derivatives dominate market volume.  The market is stuffed with behavior public companies not only ignore but alienate.

You can and should have a Passive strategy.

Morgan Stanley and JP Morgan both make the top 25 holders of US equities.  Sellsider UBS also joins the top 25. Why did big members of the sellside move to the buyside? Because the use of fundamental research was declining.

Investors have shifted from bottom-up analysis to owning the S&P 500 (now nearly 90% of market cap). Plus, it’s a great business model to charge fees on assets. Think of how many billionaires made their money doing it. 

As a central strategic tendency, all are asset-allocation firms. There are funds from all three in Karen’s and my managed accounts. Save for a few legacy positions, none are providing stock-picking services.

And it’s earnings season. Companies by the thousands will pump out data and narratives designed for Active Investment.  Which is a net seller. Isn’t it time for a change?

Oh, and options expire today and tomorrow, jammed into two days by the market holiday for Good Friday.  The biggest forces in the stock market tie to derivatives.

Yeah but Tim. What worries us is tariffs. 

Really? The data say we’re in a bear market but tariffs didn’t cause it.  Inflation did. It started before Trump took office.  Mike Wilson thinks so too.  We had a bear market in 2022 in response to the end of cheap money.

It’s always about money. What follows inflation? Deflation.  Stocks are a hedge against inflation. When it ends, prices fall, including prices of stocks.

Recessions happen when people run out of money. We haven’t quite gotten there yet, but it’s coming.  If anything, a strategy that puts American economic interests first might blunt it. As Apollo’s Marc Rowan said, why should the USA be the most open market?

Demand in stocks dropped this week to the lowest since 2022 and Supply marketwide is still over 50%.  We might have a run up for a bit because stocks are oversold. It happened in 2022 too. We had three more trips to the ditch before we left it in October that year.  

Investors, always beware the Demand/Supply balance in stocks. It reflects all motivations. It’s a very easy thing to track. Give it a try.

If you’re readying to report results, companies, realize you’re a product far more than you’re a story. Big profits for trading desks at banks are the latest clanging claxon telling us so. What should you do?  Ask us. 

Happy Easter!  Catch you next week.