March 17, 2021

March 17: The machination of machines!

Couldn’t blame you if you missed it.

 

For many, these past few weeks and the ones coming up are the busiest on the IR calendar. Board presentations, ASMs, virtual analyst conferences and investor days. You just finish year-end events and Q1 reporting is rushing at you.

 

Maybe you missed last week’s Market Structure Map. Tim Quast did an excellent job sharing our most-up-to-date view on how the Market works. If you missed it you can find it at: modernir.com/msm – it’s worth revisiting and sharing with your entire IR team, including the senior-most members of your investor and media facing IR team.

 

If you are a regular reader, you may have already considered putting constraints on no-longer preeminent sell-siders (data show their primary audience – yes, including still important long-term institutional holders – Active Investment in our parlance – consistently reflects less than 9.5 percent of all trading Market wide.

 

…with all respect and due appreciation to Python (Monty) Pictures.

No today, even after the recent storied, but largely isolated uptick in retail day trader influence – its machines, acting far faster with mathematical indifference driving the pricing for nearly, if not all equities. These Fast Traders – collocated to exchange computers running increasingly tactical algorithms (53 percent of all trading in the S&P500® last week) are no longer simple amplifiers of nuanced investor behavior, they search the web for data and reference points, trading both agnostically to whether it moves your equity price up or down and increasingly with intent to seemingly do just that.

 

Similar algorithmic behaviors now amplify the trading of the contextually correct, but perhaps inferentially misleading Passive Investment segment (last week: 20 percent of all Market trading). Regular readers know our growing focus on ETF-related trading that has now come to dominate this category.

 

Certainly many traditional index funds and indexed asset allocators continue to hold major positions in our companies, but any material trading is typically around known re-balancing events – like the twice annual S&P Global™ indices re-weighting, next, after this Friday’s close.

 

ETF plan sponsors on the other hand have grown increasingly “active” in their trading behaviors. Strategic sector weighting shifts, tax-related selling, and the use of machine-driven trading seemingly more common. Their influence frequently lifts Passive Investment to the Key Behavior in client’s Market Structure reports.

 

The Market has traded with some volatility recently in anticipation of monthly option expirations – not at all unusual; our calendar of such events should be a key input in your Investor Relations planning efforts and is available here – call us to learn how to avoid calendar missteps.

 

Today begins the cycle of monthly option expirations. First the widely followed CBOE Volatility Index (VIX) index. Thursday, AM-settled options expire, mostly index products. Friday brings the main events. March single stock options, single stock futures, stock index options and stock index futures all expire Friday – a so called, “quadruple witching” day. This happens just once a quarter.

 

A wide gamut of Market participants including – model-driven ETF sponsors, Hedge Funds, derivative traders, etc., with expiring options or futures positions must decide how to redeploy funds this week.

 

Little to do with fundamental business performance or valuations, the increased volume and volatility of these routine Market events queue exaggerated machine trading and can meaningfully impact the trading and response to your Investor Relations outreach and messaging. Good news often gets lost. The impact of less good news – often amplified. Its important to know what’s making the difference. Ask us how.

 

PD Grueber

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