The narrative is beginning to rise about the reliance of a small number of stocks that has underpinned the “V” shape recovery since the tariff induced April swoon. Bloomberg again quantifies the concentration…about 50% of the returns since April is in 10 names and 33% of the gains are from 5 names.
The Newswire further states the S & P 500 is the most concentrated in history.
A broad-based conclusion that can be made is that momentum and size is the only investing variable…everything else is at best tertiary.
Considerable attention is now being focused on zero day to expiration options. According to the CBOE Global Markets, retail traders—defined as trading 10 options contracts or less—now represents the majority of S & P 500 options volume, often exceeding half of the total trading in the S & P 500 itself. Call volume greatly exceeds put volumes.
This retail trading drives large spikes in volumes that is affecting the price behavior of the S & P 500 according to the CBOE.
Are the indices being distorted by the new legion of buyers, perhaps creating the ultimate “pump and dump” environment? The CBOE stated that the outcome is potentially unknown and perhaps the markets’ underpinnings are more fragile than currently believed.
Today the CPI is released. Prices are expected to increase nominally, perhaps suggesting the tariffs are still not yet generating the inflationary pressures feared. The headline number is expected to be flat as compared to the month prior. Core prices are expected to increase by 0.1% from April’s level.
Volaitlity may rise if the data misses consensus.
Also today is a $39 billion ten-year Treasury auction. How will it be received?
Commenting on yesterday’s activity, equities staged a quiet advance on trad optimism. Treasuries were largely unchanged.
Last night the foreign markets were mixed. London was up 0.02%, Paris down 0.15% and Frankfurt up 0.14%. China was up 0.52%, Japan up 0.5% and Hang Seng up 0.84%.
Futures are down about 0.25% ahead of the CPI. China and The US have agreed to further trade talks. The 10-year is off 6/32 to yield 4.49%.
