From The Human Touch To The Software Way
Algorithmic trading is a field in quantitative finance where computer sciences is at least as important as mathematics, if not more and where cutting edge technology is the decisive factor.....
HFT AND DARK POOLS:
Positive or Negative?
Before the 1990s, the way by which stocks were traded in the US was fairly simple: a market participant made a decision to buy or sell and relayed this information to a broker, who then routed the order to an exchange....
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Frequently asked questions
THE FIRST HALF
INDEX AND SECTOR PERFORMANCE
A month can make quite a difference. After being the top sector for the month of May gaining a little over 7% vs. the previous month, a tumultuous month of June had the S&P 500 Information Technology Index finishing third from the bottom slightly negative at -0.38% for the month of June. Within the information technology sector, the software and software services sub segment was an outlier up +1.26% while the hardware and equipment sub sector finished the month negative at -0.51% The semi and semi equipment sub segment was deep into negative territory for the month finishing at -6.23% and generally keeping the sector in negative territory for the month. The importance of the technology sector and its influence on the economy cannot be overlooked. The sector now makes up more than a quarter of the total market cap of the S&P 500 index. This is its largest percentage since the peak of the tech bubble in 1999, when it topped out at over 30% of the index, and larger than any other sector in at least the last 25 year according to Bespoke Group, so there is a lot of attention paid to its performance. There was not just one element that held the sector back from continuing its strong growth for the year, but a myriad of factors over the June month. The first is the ongoing trade wars between the U.S., China and Europe. The tech sector gets over 50% of its revenue from overseas sources, the second-highest out of all eleven sectors. That could leave the sector vulnerable in two ways. Recent dollar strength makes U.S. goods more expensive to foreign buyers, and could result in reduced demand and the ongoing tit for tat among the 3 nations could result in creased tariffs on U.S. tech exports. The other two factors pressuring the sector was some earnings softness and guidance from some reporting companies during the month and some sector rotation out of technology because of the weakness at the end of the month/quarter. That sector rotation out of technology or window dressing if you will, can also be a testament to the strength of the sector overall and the momentum it has carried into June. So far YTD Technology has been a beast growing 10.16% so far despite a hiccup in June. The bottom line is technology is now in practically everything we do, so it will remain a crucial segment of the economy.
The leading sector in Q2 was Energy with a 12.7% advance, its best since Q4 2011. Bolstering the gain was a 14% increase in WTI crude oil, its fourth consecutive quarterly gain. The supply glut has mostly abated and OPEC recently agreed to relax their self-imposed production caps, but supply disruptions from Iran, Venezuela, and Libya are keeping things interesting. There is growing political pressure on the Saudis to produce even more in an effort to contain gasoline prices ahead of the November elections in the U.S., and though low prices might not be appealing for voters working in the industry, this development suggests we have moved closer to supply shortages rather than a supply glut.
Retail stocks had a strong June and a very strong Q2 2018. The S&P 500 Retail Index gained over 4.4% for June and 14% for Q2 2018. This, again, helped push the broader based S&P 500 Consumer Discretionary Index up 3.5% for June and up 8% for the quarter, making it the best performing sector of the S&P 500 for 2018. Again, on the flip side, Consumer Staples underperformed the markets. The S&P 500 Consumer Staples Index gained 4% for June but is still down over 2% for the Quarter. Consumer spend is an important factor in U.S. GDP and any signs of strength there should be viewed as a positive for the economy while any weakness should be cause for concern. With Q1 2018 GDP at 2% and a trade wars rampant, cause for concern may be appropriate for the sector.
Another theme in 2018 so far is the return of volatility. The question for market watchers seems to be has volatility returned from 2017's abnormally low levels. The answer, at least for the first half of the year, is "yes, but less so in 2Q 2018 than in 1Q 2018
Overall YTD there have been 36 days in which the S&P 500 has risen or fallen by 1% or more compared to a total of eight in all of 2017. 2017 was an abnormally low year for volatility however. From February through April, the S&P 500 had a total of 29 days with close-to-close moves of 1% or greater. Over half (12) of February's 19 trading days saw such moves. Things did not get much better in March (8) and April (9). However, since then May (3) and June (2) have been much quieter.
IPOs AND M&A
ETF Fund flows show that money continues to move to U.S. small caps and tech stocks as well as into short term treasuries and higher grade corporate debt.
ARE TREASURIES OFFERING A SIGNAL?
The difference between yields on U.S. 2-year Treasuries compared to 10 year paper continues to narrow. At the end of June, the yield differential was 3 basis points, down from 52 basis points at year end. The Fed is raising rates at the short end of the curve and some would argue that long term rates are too low: suppressed partly by a recent flight to quality given market turmoil and the ECB's continued actions to keep rates low in the Eurozone. Still market watchers are concerned. History shows that once the Treasury yield curve inverts (10s yield less than 2s) a US recession is likely. One thing that might change the current trajectory is inflation brought about by a trade war as goods become more expensive. Let's hope that is not the solution.
Among the issues investors will be watching for the balance of 2018 are further signs of a trade war escalation, a potential slowing of corporate earnings growth, economic data, the shape of the yield curve, dollar strength & its impact on multinationals, trading partners and emerging markets, Fed tightening and the risk of a "policy error", and any return of volatility to equities.
THE INSTRUMENTS OF CHOICE:
Rules To Stick To
ETF’s trade slightly differently than mutual funds and equities. Investors in mutual funds buy and sell fund shares directly with the mutual fund. Conversely, most ETF investors do not trade directly with the ETF...
MURKY WATERS AND POPULARITY:
Dark pool trading has become more common place in today’s global capital markets, providing a degree of questionable competition and an alternative to traditional exchanges......
So important but hindered by technology
The economic role of an exchange is to handle transactions with superior execution speed at reasonable cost, find the both sides of a trade, produce the price.....
EXCHANGE TRADED FUNDS:
The instruments of choice
An exchange traded fund (ETF) is a pooled investment product with assets that can be acquired or distributed throughout the day on a listed exchange at true market prices.....
Technical analysis relative to the capital markets is for all intent and purpose a structured type of detailed assessment by way of trading charts, engaged for forecasting the direction of market prices, through the consideration of past market data.....
HIGH FREQUENCY AND APPLICABLE STRATEGIES:
The days when traders sat fixed intently to their various trading screens in a state of emotionless self imposed artificial autism, manually executing buy / sell orders, based on market information.....
A stock option is a contract between two parties in which the stock option buyer (holder) purchases the right (but not the obligation) to buy/sell 100 shares of an underlying stock....
IT CAN GET RISKY:
No matter what investment you ultimately decide to disburse your capital upon, the matter of risk must warrant due consideration, because when and where there are two or more parties to a investment......
BUBBLES ALWAYS POP:
A long term trend of low Fed Fund and ECB rates, has led the American and European equity exchanges to scale new historical tops. The cheap cash fuelled long term bull market cycle hit its 8th consecutive year.....
A standard futures contract is a bona fide contractual obligation between two parties, to transfer an underlying asset class, at a specified date in the future.....
Fundamental analysis addresses corporate operational factors beyond the trading session lows and highs of a stock and concentrates on the core and sector activities of the company whose stock it is....