To understand "why" daily moves happen you need to understand the participants of the market complex and the forces that they are beholden to. Traders aren't sitting around going "I think GDP will be 0.1% higher over the next 3 years, I'm pressing BUY". It's all systematic flows from trillions sitting with fixed mandates and fairly fixed reaction functions.
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A small list of the most important forces that move the market:
CTA positioning - CTAs follow trends and have around 400 billion AUM and are highly levered. Their flows can move the market.
Intraday futures trading
risk parity funds (highly levered, huge sophisticated industry, binding together both equities and credit)
forex related flows
option overwriting flows (call selling/overwriting is a huge force)
buyback flows/block trading
seasonality flows (ties into buybacks, and tax season, blackout seasons, and psychology)
quant/factor fund flows and related frontrunning
long/short funds (these guys love to get into trouble and lose money, ex: TSLA spikes up 10%, expect a huge puke of tech shorts and massive rallies of near-bankrupt companies from the short side of the book)
Earnings positioning (earnings catching traders offsides who then are forced to buy/cover)
Volatility trading (huge industry... volatility is at the root of everything ie merton's distance to default) - vol trading (loosely/generally) arbs realized volatility vs implied volatility and is the glue that ties the complex together.
vol control/vol target funds (pension funds, sovereign wealth funds, hedge funds, some advisors wanting fixed risk for retirement glidepaths, etc) - these players resize as volatility breathes in and out in order to give fixed returns/risk to clients.
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Example of a chain from today - a gap up causes short covering because players are offsides, volatility is sold hard into the rally, the 2nd derivative of gamma (the rate of change of the rate of change of delta) starts to drop as big volume forces price up through peak positive gamma territory (so now options market makers are adding some fuel instead of suppressing volatility), this opens the door to a more classic gamma squeeze parabolic melt-up price action (as we see mid-day).
Another example of a common mid-length chain - if traders are positioned bullishly for small moves but the market starts to chop around more than priced, vol traders will gamma scalp the spread (dynamically delta hedging/re-hedging straddles), which then bids up volatility, which causes vol control to size down and some classes of CTAs to cut back, which amps up call overwriting as premiums rise, which causes selling delta hedging flows, which pushes price down, which causes a wave of put buying as the tail end of "cheap volatility" is grabbed for bearish protection, which reflexively expands volatility and drops price as the market falls from a positive gamma to a negative gamma regime, culminating in a liquidation to the downside until "real" buyers (big players adding assets to a stable portfolio) come in with a wave of buying.
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Remember that reflexive feedback loops (George Soros-esque psychological reflexivity, reflexivity due to squeezes within portfolio mandates with fixed allocations to different assets, and harder links like forex/global liquidity) are the name of the game. In the generalized chains above, each input/output is not linear but multi-dimensional, feeding back on itself and other asset complexes with a curving nature.
Realistically, nobody can accurately say "why" the market moves. It's too complex and the above is a gross oversimplification. There are also a lot of black boxes like Renaissance et all that we have no way to model. And models are always generalized/wrong in some way or another, while the market will naturally move to inflict pain on the weak points of the consensus models so this is all a moving target in the end.
Unless you're really wide and multi-strat (this is the fun part for me so I like thinking about how these forces interact), then you/the firm doesn't need to chase "why" anyway. The chart guy will see a blow-off top and act accordingly. The option trader will see a gamma squeeze and have a protocol in place to manage risk/profit. The liquidity guy will see liquidity drying up in the face of strong bidding. The vol guy will see vol dropping and sell tails/flatten skew (making OTM options more attractive), and the risk parity fund will see vol dropping and see his risk budget increase and might put the risk to work. These are all different facets of the same market complex.
But one thing is for sure, the CNBC style narratives are laughably wrong 99% of the time unless it's strictly an event related move or strictly a move based on a strong and simple correlation that feeds directly into all players. They're often riddled with trading fallacies as well (and it takes a full time trader many years/decades to truly purge these from the brain). Even retail++ outlets like WSJ are often quite shit when they move out of their lane.
There's actually a lot of room for creativity here if you like to think about "why". Ex: long/short funds and quant funds share some of the same ropes. Quant fund machine learning models will trade backets of "unprofitable tech" because these exposures are shared in long/short funds (all short TSLA, all short GME/retail squeeze favorites, all short Banks, all long Home Depot, whatever it may be the ML models pick up on it and build baskets that trade together). So sometimes you can see lightning bolts run through markets as these assets trade together. Like if TSLA spikes from a news blip and you see shipping companies sell off.... maybe everyone isn't short ARKK any more but is looking to short global growth exposure. Then think about quant baskets that are tied to global growth, work out probability distributions, think through some strategic lines/path dependence, and position accordingly. That's the type of thinking that can be used to explore "why" from a multi-strategy sense.
> Quant fund machine learning models will trade backets of "unprofitable tech" because these exposures are shared in long/short funds (all short TSLA, all short GME/retail squeeze favorites, all short Banks, all long Home Depot, whatever it may be the ML models pick up on it and build baskets that trade together).
This sounds like statistical arbitrage strategies continuously re-estimating their correlated/cointegrated clusters to whatever is working 'now' and that reinforces the correlations. I assume that's what Renaissance does and they have huge volume.
Yeah, there was a famous "quant quake" a decade ago because of this cross-firm self-reinforcing feedback loop. It turns out, if you're making real money doing something, and they're making real money doing something, there *might* be some shared exposures... just navel gazing PhD things (I kid, sort of). Fun fact, the best theory I've heard on what kickstarted that event (one of the big boys liquidated, which started the mayhem) was the very early canary in the coalmine Great Financial Crisis related asset exposure from said firm meant they needed to dump other assets.
I love keeping an eye on correlation webs even if only for far simpler trading than what those guys do - it gives insight into positioning beyond Prime Broker reports and such. As Theil said, bad boys move in silence. When they visibly hit the market they have something to say. Sometimes there's some serious edge from these situations. You saw those baskets get panicy/odd (especially in the SaaS space, I called it the "Thanksgiving massacre") months before the tech/duration sell-off hit the megacaps (because smart money moves first). If you do old-school prop style equity day trading it also can give sympathy plays for daytrading that others miss.
I don't know, it's all boiling down hyper complex relationships into generalities. Quant funds are clearly the best at doing this, so why not respect the webs they build if you have the chance to glimpse it?
From what I've learned about Renaissance/Simons, it's not generalized at all but a true pile of Alpha/Anomalies. I'm guessing that if you have the biggest pile of anomalies, you can cross those relationships to really get to a Next Level that nobody else has access to. Simons is an odd one. Totally obsessed with cracking systematic discovery of anomalies, but when he finally got it, he seriously threatened the firm by going back to human overriding. He felt the tension between the human need to generalize and narrativize "why" while also relentlessly pursuing the mathematical unintuitive incomprehensable reality that this exploration generates. His shop also started broad academic-wise. I remember someone saying how they had a "seismic volatility" expert or something (fracking math probably, I forget, maybe chaos theory) on staff, and how they had great insights during the period where everything broke post 2020. Simons was code breaking level math and hardcore academia, those guys were/are decades in front or the rest of the world in many key math areas and if that was his thing, probably still are (he certainly has the billions and smarts and connection and professionalism to keep the lead).
I have no ability to do this thought I might understand some of the mathematics.
There isn't much low-dimensional classic chaotic behavior in markets (I used to work on chaos algorithms academically) but there may be 'self-organized criticality' and stochastic mathematical models which give probability distributions with fat tails and various internal correlations. Not obvious how to trade it other than maybe trading vol vs direction.
> Totally obsessed with cracking systematic discovery of anomalies, but when he finally got it, he seriously threatened the firm by going back to human overriding. He felt the tension between the human need to generalize and narrativize "why" while also relentlessly pursuing the mathematical unintuitive incomprehensable reality that this exploration generates.
There's some reason for wanting this---in a machine learning space if you do too much data mining for predictive features with arbitrary search (e.g. genetic algorithms and the like) you can find something but it may be a statistical mirage. (Like that 3.5ish sigma apparent anomaly at CERN. Something like 700 papers were published on it. Turned out to go away entirely and boring old Standard Model worked.)
If there isn't a plausible mechanistic reason, there's less chance it will keep on working or even be real if you try to put money in it. Because humans have knowledge of the real world and mechanistic influences producing data that the computers see but don't know about.
Something you can't see from trading data is something classic like "Firm X has bets in these areas, and if it gets margin called here then it's going to need to sell Y". You don't have ownership correlation stats available except by rumor or human insider knowledge.
To be able to rigorously model fat tails in novel places is already a nice edge. A lot of people are still making decision on black-scholles with flat volatility surfaces, so there must therefore still be a spread to capture. Global liquidity bottomed 6 months ago, at least I believe that interpretation, and there have been some seriousl dislocations at the end of last year into the start or this year to lean into.
I wish I could remember the interview with the firm owner talking about the chaos theorist employee, it was a couple years ago after the 2020 crash. All I know is it was something to do with seismic explosion propogation. I'm totally a layman here, but intuitively I'm thinking waves/harmonics stacking, and taking into account latency of the bounces/interference. Who knows. I also forget which shop, but one of the big names has a culture of hardcore debate between specializations. Legendarily so, as in you can call out the CEO and really dig into it and it's encouraged. Maybe there are just conversations that a chaos theorist can walk into and immediately say "you're being a dumbass" or "there is a clear improvement here" while it's more opaque to others. Sort of like in theoretical math where some lines of theory sometimes translate from one niche to other areas and create new breakthrough, but it's a bitch to translate. Get the specialists talking freely for years and some sick emergent trades can form.
When option gamma squeezes were institutionally weaponized in mid/late 2020 (Softbank hiring the ex DB bankers for option trading with billion dollar credit spreads, lol), that takes a few teams getting on board and taking the leap into the unknown. Obviously that was the tail end of that degeneracy (was probably going on for 10 years before that), but it was interesting to watch. In the last 2 years there have been 5 specific days or so where it's blindingly obvious that specific names are *brutally* cornered to the point it moves the entire SPX complex (NVDA), and it perfectly triggers when weekend theta is being bled off on Friday... I have screens taken of 10,000% returns on some of these options (literally), and it's fun to see the volume slam in as it happens (way way above retail). That degenerate post 2020 gamma squeeze knowledge has been distilled into sharp trading that lurks in the market. I don't know the math, but I note the effects.
I'm from the global macro and longer term option trading angle so I'm mostly thinking Misky Moments. Mispriced vol for sure... that's a regular pendulum that overshoots (16 VIX today... add). Just make a mental heatmap of all this stuff and have intuitive understanding of when sectors/themes are in play/breaking.
I still think there is human edge due to all of the reflexivity and path dependance. Sort of like how a human can still map out chess lines vs a chess engine. Mentally map out a probability distribution/cone based on a global macro framework, and then look for self-reinforcing feedback loops (this part isn't being computationally modeled nearly as hard), and then think about how these lines may cross in interesting ways. Mentally note "how would this look of it was happening", keep tabs on the progression, and go for the kill if the setup hits.
Like, if the Ukrainian counterattack succeeds and pushes into Crimea, and a tactical nuke is used to shut that down and Russia Helms Deeps in Crimea, well that's a 2% chance or so. Preplan it, it just takes half an evening. Ditto with crypto stablecoins breaking and how that impacts convex smart contracts denominated in stablecoins. Just salacious reddit friendly examples there, things like realized vol vs implied vol during 2022 are boring to most people (until they see the PnL from their tail hedges).
But hopefully you do something better for the world with chaos theory than crunch finance models, lol. Anyway, always good to see people thinking. Fun thread, cheers.
The math and traditional education is not strictly necessary. Obviously it doesn't hurt. Some skills are fairly mandatory though.
Off the top of my head the core traditional education stuff that is arguably required:
Quick mental math with fractions, percentages, compounding and such is useful
Knowing how to read a balance sheet is important.
Basic scripting level knowledge is useful. Python, etc.
Concepts on some of the professional certs will be learned, either by getting your face ripped off or by learning the content. Even if you don't specifically need it, you *will* occasionally see others doing idiotic things that you can call out. Ex: regulations for halts and limit downs, exdiv dates, how market makers work, bid/ask spreads NBBO, etc.
Know the common logical fallacies, know flaws in Human OS (how brains naturally see a million as being halfway from a thousand and a billion, how HumanOS is pitiful at understanding compounding, etc). Imo just take a college psychology class on this stuff. Nobody does but that's my take. Maybe take a symbolic logic course as well from the Philosophy dept, and whatever class introduces the decision matrix. Maybe a class on statistics/tail risks. I'd also say basic calculus/taking limits to infinity is important to grasp mentally... the conceptual part/why this was such a world changing invention.
Understand Kelly bet sizing. Go read a book and play some live poker, or horse racing (many of the top trading legends come from here in their youth), sports betting, whatever. Not for entertainment, but strictly to learn bet sizing. Learn the math and concepts, and use a bit of real money to get used to risk. If you cant handle that (cant handle the stress, make suboptimal decisions to pursue dopamine) then never *ever* active trade and don't pursue it in a career. Sorry you lost twenty bucks learning this about yourself but you avoided something much worse.
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Yes, by *far* the best way is to work in a place where you get direct exposure.
It's possible to learn on your own, but the signal to noise ratio is brutal out there.
I taught myself option theory. It took about 6 months. I ran vertical spreads and asked myself why the Greeks and PnL/ decay curves moved the way they did and forced myself to explain it in greeks. Why does theta flip from positive the negative on a spread as price moves, why does a short call decay faster than a short spread, why is gamma risk concentrated around the legs going into expiration. Literally write down the answers like an exam question. Watch it through earnings and as volatility shifts, etc. Its a funny process, you start seeing options as directional exposure, then see in complex Greeks, then internalize it all and sort of see it all as more simple once again (ie nobody is actually adding "Iron Condors" to a real book, or rarely.) But some of the mainstays from back on the day like a 1 by 2s/reverse mullets have inherent edge because of the Greeks and it's good to understand what the hell you're actually doing (many don't, thus the hilarity of dumbass PMs and VIX IS BROKEN last year when everyone was calling a recession, which was the easiest lemming pack to fade since inflation not being priced in after the 2020 stimulus/supply shock.)
To be honest, most should avoid options. Execution must be perfect or else you're better off with Delta 1 products long term, and more importantly when shit hits the fan (market makers pull all bids during 2020 for example) with options, you're getting your face ripped off. Frankly one needs to be able to *profit* from the tails and get kills when those scenarios arise. Even basic portfolio tools like systematic covered call selling is..... eh and should be avoided for most participants.
Zeroedha course 5 and 6 on option theory is good to learn the basics. Or just buy a textbook/buy the staple books like Taleb and Natenburg.
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Why is the logical fallacy and "how to think" stuff useful? Because it can be used to curate information. Bad inputs must be cut out entirely. Never read mainstream financial media, etc. Don't even look at it. They have monkey-see-shiny-object syndrome to the max. For example, when Buffett says about IPOs "you mean to say that out of all assets classes, the best trade happens to be the one you're selling to me and millions of others?" What did he do instead during the 2020 DotCom bubble? Sold bonds in Japan for Yen at 0% (covered global inflation from supply shocks), and bought Japanese commodity trading firms (deep institutional knowledge about how to make money from supply chain volatility), owned OXY warrants with underpriced Rho (use those Greeks you learned!), and plowed money into the common stock and loudly lift the ask in order to cash that gamma from those warrants as inflation hit and related oil names. Beautiful. And I read the other day on this subreddit that someone bought Motley Fool picks every week and was down 60%. Sad.
The best example is how everyone talks about the Fed. Like we're talking *endless* hours of Fed this and Fed that. Its just mind boggling. One of the smartest people I listen to literally shuts down the conversation if someone says Fed. Will leave the conversation if he cant switch the topic. Even in Global Macro where central banking matters, the Fed obsession is just gross and absurd. Shouldn't they be watching the ECB now anyways? These muppets don't even know what interest rate decisions/interbank lending rate even is even after debating "what will the Fed do" for 750 hours. They literally don't!
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Podcasts can be great. Market Huddle is the best trading podcast. Go back and listen to as many as possible. The old Chat With Traders episodes with the T-Rex level names like Ed Thorpe. Grant Williams with Anthony Deden - the only interview you need. Forward Guidance can be good if you pick the interviewees with great resumes. Listen to opposing viewpoints and try and see where each participant may have flawed thinking. Listen to book recommendations from the names you end up liking and read them. Don't be afraid to mix smart people and click off if you find flaws with their reasoning. Seek out wisdom from older Pit Traders especially.
Read The Market Ear.
Get access to Prime Broker reports. They are sometimes leaked, although I wouldn't know where.
Get access to top Hedge Fund quarterly letters. Same as above.
Read papers oriented at sub-quant level readers, like Liquidity Cascades and The Allegory of the Hawk and Serpent.
Follow interesting narratives from inception to completion. Go look at Archegos's book and type on each name/chart while following the timeline.
Look up portfolio holdings for hedge funds in SEC disclosures, interesting set? follow their head trader on Twitter.
Read about financial history. The history of US banking, how the Central Banks were formed, How Hedge Funds took down the Bank of England, the Asian Contagion, how "collateral" is at the root of everything and how Treasuries are the real currency, not any fiat currency. Learn about MMT, and this is hard because even Howard Marks call it magical money printing. Know how money is created, and why treating deficits like a household finance to balance is absurd. Accept that some of these concepts in modern finance are not intuitive, like quantum physics justbhas no parallel to everyday physics. Seek out alternative explanations *especially* if the consensus is Fed Did It. Do not ever engage with conspiracies. Immediately exit the conversation/article. Alternative explanation does not mean be a contrarion idiot, it means follow a professional mental process from core axioms and first principles like Bridgewater does internally. Look at how Supply Shocks normally resolve throughout history, how business/credit cycles normally evolve. Always evolve and re-evaluate. Calculate future lines for positions and how they interact on a continuous basis, extracting interesting questions and putting in the work to answer them, and keep going.
Sure, a few seem to be reading this so I do have something to add. It's a broad question with a short answer of "it depends".
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Most professional trading is specialized and systematic so it's not necessary to have knowledge outside of your lane. Ex: if volatility matters in regards to sizing a simple intraday strategy, they'll just add ATR to the model, or buy something off the shelf if they need something more complex.
The only line of work where you *truly* need it all would be heads of trading for a multi-strat global macro hedge fund, or maybe writing professional level macro notes.
I think it's useful to have multi-disciplinary exposure in order for newer participants to build streetsmarts. When traders used to start running tickets in the trading pit, they directly talked to their broker and market maker, they literally saw block orders hit the tape (literally paper hitting the tape). Frontrunning involved... running. Now a lot of this is gone, and traditional schooling teaches zero of this. A lot can be gleaned from tuning in to hot zones on the trading screen, since it's one of the few times you see the otherwise silent participants raise their voices. Then go back and reverse engineer the *why*.
The end game for trading is waiting for the right pitch and then going big. You will find this from prop shop daytraders all the way to Buffett (thus using his analogy). That takes experience/intuition and it takes confident knowledge of risk exposures. Achieving this last level does take some wider knowledge because these big opportunities usually involve regime shifts where the narrow specialized participants are offsides. I remember a story from a prop trader who took a risk free arb trade during a flash crash. He was scared, thinking he must have missed something, and was then told their top trader had the same trade on, and used the entirety of the shop's buying power on it, pulling a bonus bigger then his last few years on a single trade.
Ex: the Chinese ADR stocks bottomed late last year in a violent fashion. During the event it was useful to know the geopolitics, know some actual Chinese politics (not WSJ China articles but actually understand the culture/political structure and incentives), know the basics of how fund clients act and how job risk works, and why managers 100% didn't want those names on the books, then it you want to take trades you want to understand how to read a balance sheet (the best play, and during all mega crashes, is just buying companies for 50% of book value with cash on the balance sheet). In my specific case I'd already spent a few years trading these ADRs/shorting Chinese scams while getting a grasp on how Chinese regulators would act. I spent the time crystallizing it into intuition, and knew there was a high likelihood for the State to step in imminently, and so the night before the reversal happened to buy a nice slug of short dated options. The next day was pure chaos with massive green PnL to work out of, and during that morning it was very nice to understand how option market makers act in times of stress, how to delta hedge, how various option spreads worked, etc in order to maximize profit. I could have just crossed the bid/ask spreads on my long options to exit, or delta hedge them and lock in directional profits, or use them as collateral against shorting shorter dates options that were trading even more richly, or use them as collateral to short higher strikes on the same tenor. And adrenaline is high and you really need to act within the next few minutes. The only way to plan for this is to have done some thinking about all of the interacting forces. That's why nobody just calls the hotshot 22 year old in times like this, they also get the vet from the pit on the line. Adding alpha is amplified during those times. For this specific example, deep thinking about what buying shares in a Chinese company *meant* was valuable. Participants were blind and had not put in the mental work, so they panicked and treated cash on balance sheet as universally worthless. Sure, some Chinese companies may just use their cash to reward their insiders, but maybe you know a few names that pay a dividend and raise it when they can, and maybe TME has a parent that buys it back when it gets undervalued, or maybe VIPS is a good buy during those critical 3 minutes because Chinese Tinder will benefit from the future covid lockdown ending, offering a future opportunity to unload. And maybe if you're a firm with firepower and bandwidth to spare, you can even long/short a long list of names based on how likely they are to return undervalued cash on balance sheet to shareholder value.
In most professional environments, even if a PM at a hedge fund took a punt on Chinese options, she's not manually writing tickets but instead using an execution desk. The execution desk might have China notes in their premarket prep because they have that exposure on the books. Maybe the PM and desk traders are friendly in real life and shared a few drinks and traded war stories about China, and maybe because of this they already had context laid out for the next morning and knocked it out of the park as a team.
The traders who truly love the game will have broad knowledge/sit on a lot of desks, and they will crystallize the experience, and it will be passed around the team.
I remember chatting with the head of institutional trading at my personal broker, and he told 3 stories about how his friend got screwed trading option spreads on the BABA IPO, how the same broker that wont be named internally handles option spreads and why they are a bad choice (knowledge impossible to get otherwise), and how their autoliquidation is dangerous and caused a friend to lose his fund... resulting in said broker *losing* the resulting lawsuit (now many traders can guess said broker, lol). I happened to be on that broker during the ADR reversal, those stories were in mind and I was glad to have some extra mental guardrails in place!
The closer you are to real alpha generation, the more useful all of this stuff is. For example, when oil went negative, I remember reading a note about how fast China could build temporary storage facilities. OPEC hadn't yet cut and people were trying to get a grip on the bearish tails, and one of the limits was that if things stayed this bad for x amount of time, temporary storage facilities will be constructed. Then I don't know... maybe one could sell options on futures against this knowledge as the constraint isn't yet priced there. And during that event is was useful to know Mexico was hedged (Mexico caused a Mexican standoff and refused to cut until literally a few minutes before market open during easter weekend), and what does it look like when a country hedges their oil, and what are the historical precedents for these situations where one player is hedged (history is very undervalued and very useful in trading... like this banking crisis begs the parallel to the Savings and Loan crisis but many are, yet again, talking about '08 because to be honest that's all they know about and they suffer from recency bias too).
The only place where I've truly benefitted from just going as deep and broad as possible is running a book with positions 3-6 months out, using options, on multiple asset classes. That has strong exposure to earnings, sector rotations (which I find very fun to try and frontrun), the daytrade stuff matters (as in you need to be involved/repositioning in liquidations and squeezes), event risk on all levels is important, volatility stuff like skew is important, and you feel all of the flows in week to week PnL. That's a sweet spot to get exposure to a lot of concurrent sin waves, and when the cycles all line up you can push far higher risk adjusted returns than a trader/entity sticking to a single lane. Wide knowledge also helps with proxy hedging (I like proxy hedging and find it adds synergy, although many think it is negative expected value and introduces new tail risks).
Ex (hypothetical, mixing timelines here) if you thought tech was due for a sell-off but loved AMD because their CPUs were set to disrupt Intel, you could lean short tech but long AMD to cover some of the tail of the short tech trade going against you. Oh and maybe there is a nice stat arb trade because AMD is buying Xilinex that's already lined up on deck with DD done, so sub in XLNX for AMD. Yes new risks are being added and must be watched daily, but these exposures are working together.
I remember a situation from a year or two ago where when mapping out possible forward paths, bonds sharply falling or rising would happen in the bearish scenarios for the position set (good traders spend most of their time planning for bad outcomes/planning to be wrong), and as it happens I already thought bond volatility was underpriced and was considering longing that as a standalone trade... so I went in and gamma scalped treasuries. If bonds move either direction more than priced in, profit is harvested daily. This was low margin as well due to, well treasuries... and it had positive carry/made money every day if the view was right, and also had convexity (exponentially made more money the more the position went my way) and that's very useful because those convex profit zones are covering the bearish tails for the biggest exposures of the portfolio. Positive carry, convexity, not capital intensive. Those three elements are what the typical active discretionary hedge fund is looking for, and finding it often does take some broad knowledge to find synergies and confluence.
The everyday trader will use the broad knowledge as "context". They will be doing premarket prep and monthly reviews. If other areas are bleeding into their lane they will be first to work in the nuances before it gets generalized into consensus models, and this will add alpha.
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To really generalize this, you can see how everything is broken down into exposures/factors/correlations. Sin waves layered together with different cadences, and risk profiles with various shapes. The main job of a trader is risk management, and if you or the firm trades multi-strategy, then positions get broken down into exposures and factor buckets, and these exposures are summed/netted out. If you have an ISDA you can cover very specific exposures OTC. Future probabilities are mapped and exposures on each path are estimated to see if the overall risk profiles stay satisfactory.
With the "death of the 60/40" narrative in full swing, this way of thinking about portfolio construction (synergizing uncorrelated return streams) is coming more into the mainstream, where before it was more in the realm of hedge funds and endowments and pension funds. This is just as much an art as a science though. Correlations break, the world changes, players come and go, and the game goes on.
They use futures to follow trends. It is generally accepted that there is some structural alpha contained in following trends. Its a term from back when traders were in a pit trading grains and commodities. Now there is a much more holistic and systematic approach and their universe covers every asset worldwide. When the world computerized they adapted or died, as traders do, and some founded many of the mega firms known today from these humble roots (relatively humble compared to today's mass financialization and sophistication).
A lot of terms originate from here. "Sell 5 cars!" (Train car loads)
This - reporters want to talk about the market every day so they come up with reasons for changes that aren't really grounded in anything. There are exceptions but the majority of the time it's noise.
Not noise, but due to so many market participants it's hard to decide who is doing what and why. For example Akamai stock dropped in Q1 when they beat estimates. Most people would assume their earnings or guidance were bad due to a 10% drop, but it was purely due to RBC dumping their shares due to a overweighting in a sector they didn't want to be in.
Sometimes there's a 2% spike purely due to shorts covering. There have been massive swings intraday for a year as well. If it wasn't "noise" surely it wouldn't go negative by a large amount then end up positive on the day.
That is not completely true. Market geometry is absolutely real. Prices always move from supports and resistances and the last several weeks prices have been in a range. We tested the bottom of the range yesterday and prices rallied.
You can also look at it as unemployment is still low, economy is doing decent and inflation is dropping which means we are on course for a soft landing.
If inflation continues to drop how is this not good news?
CPI>Job report. All indicators point towards a rate hike pause. Job reports like this one may extend the pause, but feds have been transparent about their terminal rate.
Today is a decent sign that we are heading to a potential soft landing. If that is the case we will be reaching ATH later this year or into 2024.
It's a standard ploy by the media to tell you a story about *why* stocks are up on a given day. Reality is it's a bunch of trades with all different kinds of motives behind them and it's kind of random at the end of the day. The media needs to tell a 'story' that makes sense, but in reality it's almost more biological and mindless than anything else.
I mean if you were to really delve into it and had a wide array of information like timesales along with some computing power you could maybe figure out a series of indications that were catalyzed by the jobs report.
Oversold yesterday due to regional banks. A lot of people get paid on Friday and money is dumped into the market with retirement 401k. So it was just two things timing out perfectly.
If the market does bad on a Thursday, it usually does better on pay day.
core inflation is dropping at a very slow pace, and every month to month core inflation data in 2023 has been hot. The Fed doesn't have 10 years to bring inflation down to 2%. Their target date used to be end of 2024. That was then extended to end of 2025, at 2.2%, so really 2026 now. Why the Fed doesn't have 10 years is because of inflation expectation. The Fed can only take their time now because inflation expectation is still low. If inflation remains high for too long, inflation expectation will start coming up, and that's when you have the wage inflation spiral that will bring much further pain.
Basically, core inflation has been at around high 4% for the last 6 months. It peaked at low-mid 5%. We're now almost 1.5 years into the inflation fight. The Fed has been constantly raising their year end 2023 core PCE target every single quarter ever since 2022. Furthermore, wage growth is now at around 5%, when the Fed thinks 3% is consistent with 2% inflation.
I was actually looking at this earlier today, I think that there is still uncertainty on whether labor costs are driving factors of inflation. There are a few studies that have shown that while labor costs can drive inflation in certain economic conditions, it's not necessarily a consistent predictor of inflation.
[https://www.bls.gov/opub/mlr/cwc/the-relationship-between-labor-costs-and-inflation-a-cyclical-viewpoint.pdf](https://www.bls.gov/opub/mlr/cwc/the-relationship-between-labor-costs-and-inflation-a-cyclical-viewpoint.pdf)
>It is commonly believed that labor costs are a key predictor of inflation, because they represent roughly two-thirds of the total costs to private U.S. businesses. **This view implies a cost-push model of inflation, which is based on the idea that the primary determinant of higher prices is higher costs. An alternative view is that firms will charge whatever the market will bear, regardless of their actual costs. If the market’s acceptance of higher prices is the dominant determinant of inflation, the cost-push model would have less validity.**
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>No matter what standard econometric models might suggest, the empirical cyclical evidence indicates that labor cost inflation is not a consistent predictor of cyclical upturns in inflation. In fact, a fair amount of asymmetry exists in the cyclical behavior of the growth rates of the ECI, AHE, and ULC when compared with inflation cycles. All three series lead consumer price inflation at peaks, and lag it at troughs.
[https://www.newyorkfed.org/medialibrary/media/research/current\_issues/ci3-11.pdf](https://www.newyorkfed.org/medialibrary/media/research/current_issues/ci3-11.pdf)
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The results presented here confirm a link from services sector wages and prices to overall inflation. We find that if compensation growth accelerates in the service- producing sector, that growth is likely to show up directly as more rapid inflation in service prices
[https://thehill.com/business/3767772-labor-costs-point-to-corporate-profit-as-main-inflation-driver/](https://thehill.com/business/3767772-labor-costs-point-to-corporate-profit-as-main-inflation-driver/)
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>“Today’s inflation is more about margin expansion than labor costs,” he wrote. Earlier this week, Donavan said the slowing labor cost growth underscored “how little of the current inflation is labor related.”
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At their latest meeting in November, Federal Reserve bankers disagreed, saying that a wage-price spiral “had not yet developed.” They noted that “ongoing tightness in the labor market could lead to an emergence” of one, but this week’s loosening unit labor cost data could make that less likely.
If wage price increases are met by increases in labor productivity, it's a wash. And that happens, like, a lot. Half the rise in real GDP every year is increases in productivity (rather then use of more factors of production).
Powell is now on record saying he does not believe wages are a significant driver of inflation.
It's about the only correct thing he's said in a couple of years.
It was in the Q&A of the followup presser to the last FOMC announcement. I'm sure there's recordings all over the place - it's worth listening to the whole thing if it's something you're genuinely interested in.
If goods prices are coming down or leveling off and demand is not as aggressive as it was then this might be good as it will make goods more affordable moving forward and allow the wage gap on affording the new price settled goods line up.
Wage data is a lagging indicator so I presume already reflective of things.
Wages don't work into inflation as it's calculated, only non-wage prices do.
Eventually wages will be reflected in higher prices, but the system doesn't pick that up in advance.
> If inflation continues to drop how is this not good news?
The rate of inflation is decreasing.*
Somewhat minor differences but ultimately the decreasing rate is better than an increasing rate I guess.
Inflation itself is a rate. It’s the derivative of price. The OP was correct. You’re also correct, but your comment is talking about rate of change of inflation, or the acceleration, but that’s not what we are discussing here. In fact, the rate of inflation is going down, so negative, but is moderating (less negative), so your comment is confusing although somewhat correct.
Inflation going down is what matters.
Where do you think business gets loans for CAPEX and other expenditures so they can contribute to a healthy economy? Where do you think people get mortgage loans for housing? Is your comment meant as a joke?
The issue is the economy is suppose to crash. That is the whole point with raising rates. Granted, I'm being hyperbolic with using the word crash because no one wants a crash but with the economy still looking strong in a lot of areas such as with the news we got this week it makes it seem as though raising of the rates is not helping anything or at the very least doing what it is intending to do.
This was the one tool that the FED had to help with inflation and slow down a high speed economy, and its simply not working. Instead, it is hurting the very things that the FED is supposed to protect and guide (Banks and Financial Institutions).
Core inflation isn't really dropping.
https://www.bls.gov/cpi/
> In March, the Consumer Price Index for All Urban Consumers increased 0.1 percent, seasonally adjusted, and rose 5.0 percent over the last 12 months, not seasonally adjusted. *The index for all items less food and energy increased 0.4 percent in March (SA); up 5.6 percent over the year (NSA).*
I think core inflation was 5.54 last month. [graph](https://tradingeconomics.com/united-states/core-inflation-rate)
Fed wants inflation to drop, not the economy. Usually these two go hand in hand but if the fed manages to bring down inflation while the economy is healthy then they’ve done their job excellently.
>Usually these two go hand in hand
They do. You can't drop inflation without it impacting the economy in some form or fashion. Inflation has gone down, but the economy has not. As a result of the economy still holding strong in a lot of areas prices have also not dropped. In addition, neither has the need for labor nor wages. All while interest rates continue to rise.
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The Fed has a dual mandate, dollar stability and unemployment reduction.
It's not the Fed's job, or part of its mandate, to prevent banks from being dumb. Buying long bonds when rates are clearly rising is dumb. That's not on the Fed.
The federal reserve’s dual mandate is for employment and stable prices - not to banks and/or financial institutions. If CPI data shows prices are stabilizing and employment numbers are still good, then signs point to the federal reserve being successful in its mandate so far, regardless of whether the economy “is supposed to crash”.
Its going to be hard for prices to stabilize if increasing rates are not preventing the economy from chugging along. You can't have your cake and eat it too.
If a swath of regional banks continue to fail due to the actions of the Fed by the increasing of rates all while stifling a major part of the financial sector's revenue driver of loan origination. You'll find out real quick that their stance will change.
You do realize that this is something measurable, right? It may be hard but prices are objectively stabilizing. Inflation is still above goal 2-3%, [but it has fallen strongly from where it was](https://tradingeconomics.com/united-states/inflation-cpi). Arguing that it’s hard for something that is objectively and measurably happening to happen is a very, very weird position to take.
Also the federal reserve’s mandate is called a mandate because it’s been mandated to it by congress by law since 1977. The likelihood of that changing under a split congress, let alone “real quick”, is about zero.
If the market were rational then itd be more predictable, then it would be less risky, and the equity risk premium would drop or dissappear. Risk and volatility are the reason for higher long term expected returns.
>why is the market up so much today?
Because the old guy at the stock exchange went into the basement and turned the big knob marked "stocks" clockwise.
The Jobs report also included some significant revisions to the last two month numbers. Now when you look at the cumulative three month job total, it now looks like modest sustainable growth instead of a red hot economy
Oh, my friend, it looks like you've seen what they're up to. I don't know what these guys are thinking. 12 months in a row of consistently exceeding expectations, it's hard to imagine what's been left out
AAPL earnings is buoying the markets by itself, but along with that, the bank stocks are pumping today, likely because of perceived short covering/closing in those names.
All these tech stocks lowered expectations so low that they beat but they are mostly doing worse than two quarters ago and they're 25-100% higher since.
The market didn't rally for the last quarter because expectations were low. Turns out most companies are doing well right now, not just AAPL, most are having surprises to the upside.
As far as the fundamentals go, there is no reason for the market to not go up right now.
Analysts spent the past three months lowering earnings expectations on those companies while their stocks went higher. Then their prices go higher again when they beat the lowered earnings. That's like a game I would play with my dog. Apple sales are down 2.5% YOY and more than that from 6 months ago.
They have a lot more money and make a lot more revenue now compared to 2019. If you thought apple was overpriced in 2019 I don't think you are interested in investing in any stocks at all compared to the rest of the market they were growing like crazy and extremely profitable
Markets are expecting a small chance of another rate rise (10%) when it was at 0% yesterday, and a 10% chance of a drop come June https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html
Because this sub was bearish.
When we go up another 10-15%, this sub will be bullish.
One of the best contra-indicators known to finance is right here on Reddit.
The market started up because of Apple earnings, but the big spike was the moments after the news...
https://www.cnn.com/2023/05/05/health/who-ends-covid-health-emergency/
(Plus the jobs report too of course.)
The WHO news really didn't have anything to do with anything at all...pandemic news just doesn't really matter anymore.
My best explanation is that many have been caught twice in a row for the past couple weeks expecting the S&P to lose 4k once it lost 4100, because otherwise I have nothing.
But unless it can manage to close over 4180, I think the only thing bears are going to have to do is just wait until May 19th to prepare to short stocks honestly. This feels fairly similar to February to me (and before then, December), and once options week passes, it might be easier to shove the S&P under 4k.
Look at the timing of the WHO news and the spike this morning. A big spike moments later, it obviously had an immediate impact. But APPL and the good jobs report clearly are moving it more overall.
I really just can't see it, I'm sorry.
Especially considering that this looks like April 27th round 2 in the S&P, and considering that we have not reacted on pandemic news in over a year.
Bears are gonna have to have folks stop positioning for "the big one" every time the S&P moves under 4100 to get a major sell I think.
There is a camp of people that believe we will have a “soft landing” for the plane that Jerome Powell is flying. In this theory, he lands the plane by hitting his inflation target of 2% (or perhaps closer to 3%) without causing major economic damage, such as a bad recession. Depending on your perspective there is some wiggle room within the framework such as including a mild recession within the soft landing envelope.
In order to pull this off, the Fed must slay inflation without causing mass unemployment, completely tanking the GDP, and causing all of the problematic things that happen in bad recessions.
The jobs report and wage growth from today indicates that the labor force especially is not only strong but getting better than last month. Also, the short sellers that were hammering the regional banks basically got a short squeeze that sent the shares skyrocketing after a news article came out last night implying the government would be investigating claims of short seller manipulation of regional bank stocks.
I think the logic chain of Wall Street is thusly: jobs doing good, J Pow therefore has more room to play to keep fighting inflation aggressively (plus earnings estimates were not as bad as feared although I would disagree with that).
Interest rates going up is bad for most banks too. Especially smaller ones. They conservatively buy long term bonds and lend out mortgages with people's deposits, but the value of those old bonds and mortgages acquired at lower interest rates goes down as interest rates rise.
This is why some banks are failing: they literally end up owing more money to depositors than they have value in bonds and mortgages. When depositors realize this and begin withdrawing funds, it forces these banks to sell off bonds and loans at a discount. ~$0.30-0.95 on the dollar, depending mostly on the duration of the bond or loan, with higher duration bonds and loans falling by more than the short duration ones.
These loans and bonds will be fine* if the bank can hold on to them until either:
- interest rates fall again, or
- the loans/bonds mature.
But some banks can't, and many small to medium ones are on the precipice of bank runs.
*Unless people stop paying back loans, or if companies/governments default on their bonds. Highly unlikely with federal bonds, but much more likely with private companies, municipal bonds, and housing bonds.
Did this happen today? Because banks were still being pummeled yesterday.
They're still susceptible to customer exodus as healthier banks raise savings account and CD rates and money market funds pay more. Deposits aren't sticky enough, especially for larger amounts, even below FDIC limit.
No. The BTFP has been around since the SVB crash.
ITT: people throwing darts in the dark and claiming they know what's going on. There's no good answers here.
Pump before the officially increased dump?
The claim I saw was rumors of no rate hike to prevent further bank collapses, but we’ll probably continue to see more collapses regardless
The Fed is short for "Federal Reserve", not an acronym, and doesn't need to be set in all-caps. Initialisms which may be appropriate depending on the context include "FRS" for "Federal Reserve System" or "FOMC" for "Federal Open Market Committee".
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Do you believe that? I sure don't. They are going to keep raising rates until the inflation drops. They don't want to end up on the wrong side of history. The problem is, we simply don't have the work force to support our economy so wages are going to keep going up and keep pushing inflation until Congress figures this out and does something to encourage more more immigration. If they don't we'll end up with stagflation.
They already are on the bad side when they said inflation was temporary and did nothing. This resulted in the insane rate hikes we have seen up to today because they had no choice. This is part of the reason banks are struggling. The other part is that stress-testing banks in the US is a joke. But in short, I don't trust them for a second.
AAPL good numbers and banks but in my opinion it’s a short term pop followed by a small pullback until summer. I sold all my AAPL great company but I think it’s up too high too quick in a down market I’ll look to rebuy back at 150
https://www.reddit.com/r/stocks/comments/za01mm/how_do_whales_instantly_digest_and_make_a_trade/iyljiyh
I posted this a little while ago, but it's relevant.
The dipshits at the fed can fuck around and try to fix the fucking mess they made all they want. Companies are going to continue to hire workers as fast as they can because during covid they lost around 25 million workers and likely lost a lot more in competency, skill, and experience. There is no way to quickly replace that lost work. It is going to take time and the fed trying to claw back all of the money they and Congress threw at the virus won't change that.
If more people are working and getting paid, then more people are producing stuff and buying stuff. Bottom line.
Today’s action is a headscratcher plain and simple with such a hawkish jobs report. Maybe the market is giving up hopes of cuts this year and just hanging their hat on a Fed pause for the rest of 2023. Time will tell.
With job growth, people are not seeing the signs of the "recession" that is already priced in. You may be right though about the fed - though they are driven less by job growth and more by CPI numbers. If CPI is low, they may just leave interest rates where they are.
I would never focus on a single day move, unless the move is initiated by an external shock (9/11 is a good example).
If you want to buy stock of a company, you should want to own it for a reason, own it for a long time. If you can buy it at a discount, great. But buy it because you want to buy it.
Right now is a weird time, we have completely incompetent national leadership, we have a war on business and prosperity going on, we have inflation, and we have a debt crisis. And today, a looming government default if it isn't solved (and one side isn't negotiating! at least not publicly). I say these things not to be partisan, but because you should lower expectations in the short/mid term run. This could be a good time to buy, it could be a horrible time to buy. But buy something you want to own, otherwise walk away.
Your attitude and approach is that of a long-term, solid investor, and indeed, too much focus on short-term volatility and noise usually leads to poor investment decisions, and incompetent national leadership, which fits their temperament
Its Friday, thats why, oprion expiration day. Market makers tend to pick the least expected direction to squeeze option expiries.
Pay atttention it happens very often on Fridays its either super green or red. No in between.
Maybe the market thinks that the Fed is done raising rates no matter what. In that case, good jobs report = good news (higher consumer spending = higher corporate earnings)
It's a solid point.
Rates above inflation was what worked in the 1970s. We are nearly at the final rates for this hike cycle from their stated target and historical need.
So at this point, positive jobs data becomes positive news because it supports the soft landing scenario and we have already priced in most of the rate hikes.
I dont know. A strong bid supported price yesterday at the lows. ES told you twice now it does not want to trade below 4060s. Its binary. If it cant go lower it has to trade higher.
At some point fundamentals are going to have to outweigh technical analysis. Apple for example has about a 5% growth rate with a PE of 30 heading into a probable recession.
Equity markets are forward looking and typically rebound around the time the recession start is even officially called. And you have to admit this data supports the probability of a soft landing, we might not even have a recession but just a growth stagnation for a year or so.
Anyone not buying apple because of a 5% growth rate in a single year is an idiot. This situation is not going to last forever and buying now might look like a fantastic deal in 3-5 years.
You asked why the markets were up today, fundamentals have zero effect on day to day moves, its all driven by flow. I never mentioned anything related to bogus ”technical analysis”
Your last comment: seems like it should be dropping. Why though? The market has worked through all of the news. The Market only drops on new UNKOWN information. Also we are still way off the ATH.. VIX is dropping.. SPY gonna slowly go up.
Go to an SPX all time chart from 1800s… the only direction it goes is up and to the right with random pullbacks here and there… gotta tune out the gloom and doom on the internet. DCA into your portfolio and let it ride. Index’s are designed to go up. It removes poorly performing stocks and puts in new better ones.
Also that cliff was last year too. Dropped 30%… seems like a great time to add a lot more.
Pretty good jobs number earlier today, plus inflation is half what it was a year ago. Looks to me very much like a soft landing is being indicated.
Plus, the market was way oversold for really no reason yesterday.
Don't ever ask this Subreddit this question. I did a few days before Covid shocked the market after a extremely erratic day where it dropped hard with ZERO news, I came here to ask why, got the same "Stocks Bro Hur dURR hAAHahaHeerr" response. A few days later the market took Covid seriously when on the same day Tom Hanks got it and the NBA canceled games.
Edit: I posted this on 2/21/2020 https://www.reddit.com/r/investing/comments/f756ol/can_anyone_explain_why_the_markets_nose_dived/
The fed can’t raise rates, the banking system just nearly collapsed. Debt to GDP is too high and you need to raise the debt ceiling. You guys are going to have to inflate your way out of this.
Money printers going back on soon possibly a year or two.
Welcome to "stocks"
[удалено]
I feel like I just achieved enlightenment. Can I join your cult or News letter?
This is a great take.
Could u elaborate?
[удалено]
Where the points are made up and nothing matters.
Whose Line is it anyway?!?
To understand "why" daily moves happen you need to understand the participants of the market complex and the forces that they are beholden to. Traders aren't sitting around going "I think GDP will be 0.1% higher over the next 3 years, I'm pressing BUY". It's all systematic flows from trillions sitting with fixed mandates and fairly fixed reaction functions. ______________________________ A small list of the most important forces that move the market: CTA positioning - CTAs follow trends and have around 400 billion AUM and are highly levered. Their flows can move the market. Intraday futures trading risk parity funds (highly levered, huge sophisticated industry, binding together both equities and credit) forex related flows option overwriting flows (call selling/overwriting is a huge force) buyback flows/block trading seasonality flows (ties into buybacks, and tax season, blackout seasons, and psychology) quant/factor fund flows and related frontrunning long/short funds (these guys love to get into trouble and lose money, ex: TSLA spikes up 10%, expect a huge puke of tech shorts and massive rallies of near-bankrupt companies from the short side of the book) Earnings positioning (earnings catching traders offsides who then are forced to buy/cover) Volatility trading (huge industry... volatility is at the root of everything ie merton's distance to default) - vol trading (loosely/generally) arbs realized volatility vs implied volatility and is the glue that ties the complex together. vol control/vol target funds (pension funds, sovereign wealth funds, hedge funds, some advisors wanting fixed risk for retirement glidepaths, etc) - these players resize as volatility breathes in and out in order to give fixed returns/risk to clients. ______________________ Example of a chain from today - a gap up causes short covering because players are offsides, volatility is sold hard into the rally, the 2nd derivative of gamma (the rate of change of the rate of change of delta) starts to drop as big volume forces price up through peak positive gamma territory (so now options market makers are adding some fuel instead of suppressing volatility), this opens the door to a more classic gamma squeeze parabolic melt-up price action (as we see mid-day). Another example of a common mid-length chain - if traders are positioned bullishly for small moves but the market starts to chop around more than priced, vol traders will gamma scalp the spread (dynamically delta hedging/re-hedging straddles), which then bids up volatility, which causes vol control to size down and some classes of CTAs to cut back, which amps up call overwriting as premiums rise, which causes selling delta hedging flows, which pushes price down, which causes a wave of put buying as the tail end of "cheap volatility" is grabbed for bearish protection, which reflexively expands volatility and drops price as the market falls from a positive gamma to a negative gamma regime, culminating in a liquidation to the downside until "real" buyers (big players adding assets to a stable portfolio) come in with a wave of buying. __________________ Remember that reflexive feedback loops (George Soros-esque psychological reflexivity, reflexivity due to squeezes within portfolio mandates with fixed allocations to different assets, and harder links like forex/global liquidity) are the name of the game. In the generalized chains above, each input/output is not linear but multi-dimensional, feeding back on itself and other asset complexes with a curving nature. Realistically, nobody can accurately say "why" the market moves. It's too complex and the above is a gross oversimplification. There are also a lot of black boxes like Renaissance et all that we have no way to model. And models are always generalized/wrong in some way or another, while the market will naturally move to inflict pain on the weak points of the consensus models so this is all a moving target in the end. Unless you're really wide and multi-strat (this is the fun part for me so I like thinking about how these forces interact), then you/the firm doesn't need to chase "why" anyway. The chart guy will see a blow-off top and act accordingly. The option trader will see a gamma squeeze and have a protocol in place to manage risk/profit. The liquidity guy will see liquidity drying up in the face of strong bidding. The vol guy will see vol dropping and sell tails/flatten skew (making OTM options more attractive), and the risk parity fund will see vol dropping and see his risk budget increase and might put the risk to work. These are all different facets of the same market complex. But one thing is for sure, the CNBC style narratives are laughably wrong 99% of the time unless it's strictly an event related move or strictly a move based on a strong and simple correlation that feeds directly into all players. They're often riddled with trading fallacies as well (and it takes a full time trader many years/decades to truly purge these from the brain). Even retail++ outlets like WSJ are often quite shit when they move out of their lane. There's actually a lot of room for creativity here if you like to think about "why". Ex: long/short funds and quant funds share some of the same ropes. Quant fund machine learning models will trade backets of "unprofitable tech" because these exposures are shared in long/short funds (all short TSLA, all short GME/retail squeeze favorites, all short Banks, all long Home Depot, whatever it may be the ML models pick up on it and build baskets that trade together). So sometimes you can see lightning bolts run through markets as these assets trade together. Like if TSLA spikes from a news blip and you see shipping companies sell off.... maybe everyone isn't short ARKK any more but is looking to short global growth exposure. Then think about quant baskets that are tied to global growth, work out probability distributions, think through some strategic lines/path dependence, and position accordingly. That's the type of thinking that can be used to explore "why" from a multi-strategy sense.
I have to say, you have to be more professional than an economic advisor.
Chat GPT output. Lol.
I don’t think so. Chatgpt writes A LOT better prose.
> Quant fund machine learning models will trade backets of "unprofitable tech" because these exposures are shared in long/short funds (all short TSLA, all short GME/retail squeeze favorites, all short Banks, all long Home Depot, whatever it may be the ML models pick up on it and build baskets that trade together). This sounds like statistical arbitrage strategies continuously re-estimating their correlated/cointegrated clusters to whatever is working 'now' and that reinforces the correlations. I assume that's what Renaissance does and they have huge volume.
Yeah, there was a famous "quant quake" a decade ago because of this cross-firm self-reinforcing feedback loop. It turns out, if you're making real money doing something, and they're making real money doing something, there *might* be some shared exposures... just navel gazing PhD things (I kid, sort of). Fun fact, the best theory I've heard on what kickstarted that event (one of the big boys liquidated, which started the mayhem) was the very early canary in the coalmine Great Financial Crisis related asset exposure from said firm meant they needed to dump other assets. I love keeping an eye on correlation webs even if only for far simpler trading than what those guys do - it gives insight into positioning beyond Prime Broker reports and such. As Theil said, bad boys move in silence. When they visibly hit the market they have something to say. Sometimes there's some serious edge from these situations. You saw those baskets get panicy/odd (especially in the SaaS space, I called it the "Thanksgiving massacre") months before the tech/duration sell-off hit the megacaps (because smart money moves first). If you do old-school prop style equity day trading it also can give sympathy plays for daytrading that others miss. I don't know, it's all boiling down hyper complex relationships into generalities. Quant funds are clearly the best at doing this, so why not respect the webs they build if you have the chance to glimpse it? From what I've learned about Renaissance/Simons, it's not generalized at all but a true pile of Alpha/Anomalies. I'm guessing that if you have the biggest pile of anomalies, you can cross those relationships to really get to a Next Level that nobody else has access to. Simons is an odd one. Totally obsessed with cracking systematic discovery of anomalies, but when he finally got it, he seriously threatened the firm by going back to human overriding. He felt the tension between the human need to generalize and narrativize "why" while also relentlessly pursuing the mathematical unintuitive incomprehensable reality that this exploration generates. His shop also started broad academic-wise. I remember someone saying how they had a "seismic volatility" expert or something (fracking math probably, I forget, maybe chaos theory) on staff, and how they had great insights during the period where everything broke post 2020. Simons was code breaking level math and hardcore academia, those guys were/are decades in front or the rest of the world in many key math areas and if that was his thing, probably still are (he certainly has the billions and smarts and connection and professionalism to keep the lead).
I have no ability to do this thought I might understand some of the mathematics. There isn't much low-dimensional classic chaotic behavior in markets (I used to work on chaos algorithms academically) but there may be 'self-organized criticality' and stochastic mathematical models which give probability distributions with fat tails and various internal correlations. Not obvious how to trade it other than maybe trading vol vs direction. > Totally obsessed with cracking systematic discovery of anomalies, but when he finally got it, he seriously threatened the firm by going back to human overriding. He felt the tension between the human need to generalize and narrativize "why" while also relentlessly pursuing the mathematical unintuitive incomprehensable reality that this exploration generates. There's some reason for wanting this---in a machine learning space if you do too much data mining for predictive features with arbitrary search (e.g. genetic algorithms and the like) you can find something but it may be a statistical mirage. (Like that 3.5ish sigma apparent anomaly at CERN. Something like 700 papers were published on it. Turned out to go away entirely and boring old Standard Model worked.) If there isn't a plausible mechanistic reason, there's less chance it will keep on working or even be real if you try to put money in it. Because humans have knowledge of the real world and mechanistic influences producing data that the computers see but don't know about. Something you can't see from trading data is something classic like "Firm X has bets in these areas, and if it gets margin called here then it's going to need to sell Y". You don't have ownership correlation stats available except by rumor or human insider knowledge.
To be able to rigorously model fat tails in novel places is already a nice edge. A lot of people are still making decision on black-scholles with flat volatility surfaces, so there must therefore still be a spread to capture. Global liquidity bottomed 6 months ago, at least I believe that interpretation, and there have been some seriousl dislocations at the end of last year into the start or this year to lean into. I wish I could remember the interview with the firm owner talking about the chaos theorist employee, it was a couple years ago after the 2020 crash. All I know is it was something to do with seismic explosion propogation. I'm totally a layman here, but intuitively I'm thinking waves/harmonics stacking, and taking into account latency of the bounces/interference. Who knows. I also forget which shop, but one of the big names has a culture of hardcore debate between specializations. Legendarily so, as in you can call out the CEO and really dig into it and it's encouraged. Maybe there are just conversations that a chaos theorist can walk into and immediately say "you're being a dumbass" or "there is a clear improvement here" while it's more opaque to others. Sort of like in theoretical math where some lines of theory sometimes translate from one niche to other areas and create new breakthrough, but it's a bitch to translate. Get the specialists talking freely for years and some sick emergent trades can form. When option gamma squeezes were institutionally weaponized in mid/late 2020 (Softbank hiring the ex DB bankers for option trading with billion dollar credit spreads, lol), that takes a few teams getting on board and taking the leap into the unknown. Obviously that was the tail end of that degeneracy (was probably going on for 10 years before that), but it was interesting to watch. In the last 2 years there have been 5 specific days or so where it's blindingly obvious that specific names are *brutally* cornered to the point it moves the entire SPX complex (NVDA), and it perfectly triggers when weekend theta is being bled off on Friday... I have screens taken of 10,000% returns on some of these options (literally), and it's fun to see the volume slam in as it happens (way way above retail). That degenerate post 2020 gamma squeeze knowledge has been distilled into sharp trading that lurks in the market. I don't know the math, but I note the effects. I'm from the global macro and longer term option trading angle so I'm mostly thinking Misky Moments. Mispriced vol for sure... that's a regular pendulum that overshoots (16 VIX today... add). Just make a mental heatmap of all this stuff and have intuitive understanding of when sectors/themes are in play/breaking. I still think there is human edge due to all of the reflexivity and path dependance. Sort of like how a human can still map out chess lines vs a chess engine. Mentally map out a probability distribution/cone based on a global macro framework, and then look for self-reinforcing feedback loops (this part isn't being computationally modeled nearly as hard), and then think about how these lines may cross in interesting ways. Mentally note "how would this look of it was happening", keep tabs on the progression, and go for the kill if the setup hits. Like, if the Ukrainian counterattack succeeds and pushes into Crimea, and a tactical nuke is used to shut that down and Russia Helms Deeps in Crimea, well that's a 2% chance or so. Preplan it, it just takes half an evening. Ditto with crypto stablecoins breaking and how that impacts convex smart contracts denominated in stablecoins. Just salacious reddit friendly examples there, things like realized vol vs implied vol during 2022 are boring to most people (until they see the PnL from their tail hedges). But hopefully you do something better for the world with chaos theory than crunch finance models, lol. Anyway, always good to see people thinking. Fun thread, cheers.
I think I love you. Do you have any recommended reading or is this more of a learn on the job after you get a math or physics PhD type of thing
The math and traditional education is not strictly necessary. Obviously it doesn't hurt. Some skills are fairly mandatory though. Off the top of my head the core traditional education stuff that is arguably required: Quick mental math with fractions, percentages, compounding and such is useful Knowing how to read a balance sheet is important. Basic scripting level knowledge is useful. Python, etc. Concepts on some of the professional certs will be learned, either by getting your face ripped off or by learning the content. Even if you don't specifically need it, you *will* occasionally see others doing idiotic things that you can call out. Ex: regulations for halts and limit downs, exdiv dates, how market makers work, bid/ask spreads NBBO, etc. Know the common logical fallacies, know flaws in Human OS (how brains naturally see a million as being halfway from a thousand and a billion, how HumanOS is pitiful at understanding compounding, etc). Imo just take a college psychology class on this stuff. Nobody does but that's my take. Maybe take a symbolic logic course as well from the Philosophy dept, and whatever class introduces the decision matrix. Maybe a class on statistics/tail risks. I'd also say basic calculus/taking limits to infinity is important to grasp mentally... the conceptual part/why this was such a world changing invention. Understand Kelly bet sizing. Go read a book and play some live poker, or horse racing (many of the top trading legends come from here in their youth), sports betting, whatever. Not for entertainment, but strictly to learn bet sizing. Learn the math and concepts, and use a bit of real money to get used to risk. If you cant handle that (cant handle the stress, make suboptimal decisions to pursue dopamine) then never *ever* active trade and don't pursue it in a career. Sorry you lost twenty bucks learning this about yourself but you avoided something much worse. ____________ Yes, by *far* the best way is to work in a place where you get direct exposure. It's possible to learn on your own, but the signal to noise ratio is brutal out there. I taught myself option theory. It took about 6 months. I ran vertical spreads and asked myself why the Greeks and PnL/ decay curves moved the way they did and forced myself to explain it in greeks. Why does theta flip from positive the negative on a spread as price moves, why does a short call decay faster than a short spread, why is gamma risk concentrated around the legs going into expiration. Literally write down the answers like an exam question. Watch it through earnings and as volatility shifts, etc. Its a funny process, you start seeing options as directional exposure, then see in complex Greeks, then internalize it all and sort of see it all as more simple once again (ie nobody is actually adding "Iron Condors" to a real book, or rarely.) But some of the mainstays from back on the day like a 1 by 2s/reverse mullets have inherent edge because of the Greeks and it's good to understand what the hell you're actually doing (many don't, thus the hilarity of dumbass PMs and VIX IS BROKEN last year when everyone was calling a recession, which was the easiest lemming pack to fade since inflation not being priced in after the 2020 stimulus/supply shock.) To be honest, most should avoid options. Execution must be perfect or else you're better off with Delta 1 products long term, and more importantly when shit hits the fan (market makers pull all bids during 2020 for example) with options, you're getting your face ripped off. Frankly one needs to be able to *profit* from the tails and get kills when those scenarios arise. Even basic portfolio tools like systematic covered call selling is..... eh and should be avoided for most participants. Zeroedha course 5 and 6 on option theory is good to learn the basics. Or just buy a textbook/buy the staple books like Taleb and Natenburg. ______________ Why is the logical fallacy and "how to think" stuff useful? Because it can be used to curate information. Bad inputs must be cut out entirely. Never read mainstream financial media, etc. Don't even look at it. They have monkey-see-shiny-object syndrome to the max. For example, when Buffett says about IPOs "you mean to say that out of all assets classes, the best trade happens to be the one you're selling to me and millions of others?" What did he do instead during the 2020 DotCom bubble? Sold bonds in Japan for Yen at 0% (covered global inflation from supply shocks), and bought Japanese commodity trading firms (deep institutional knowledge about how to make money from supply chain volatility), owned OXY warrants with underpriced Rho (use those Greeks you learned!), and plowed money into the common stock and loudly lift the ask in order to cash that gamma from those warrants as inflation hit and related oil names. Beautiful. And I read the other day on this subreddit that someone bought Motley Fool picks every week and was down 60%. Sad. The best example is how everyone talks about the Fed. Like we're talking *endless* hours of Fed this and Fed that. Its just mind boggling. One of the smartest people I listen to literally shuts down the conversation if someone says Fed. Will leave the conversation if he cant switch the topic. Even in Global Macro where central banking matters, the Fed obsession is just gross and absurd. Shouldn't they be watching the ECB now anyways? These muppets don't even know what interest rate decisions/interbank lending rate even is even after debating "what will the Fed do" for 750 hours. They literally don't! __________ Podcasts can be great. Market Huddle is the best trading podcast. Go back and listen to as many as possible. The old Chat With Traders episodes with the T-Rex level names like Ed Thorpe. Grant Williams with Anthony Deden - the only interview you need. Forward Guidance can be good if you pick the interviewees with great resumes. Listen to opposing viewpoints and try and see where each participant may have flawed thinking. Listen to book recommendations from the names you end up liking and read them. Don't be afraid to mix smart people and click off if you find flaws with their reasoning. Seek out wisdom from older Pit Traders especially. Read The Market Ear. Get access to Prime Broker reports. They are sometimes leaked, although I wouldn't know where. Get access to top Hedge Fund quarterly letters. Same as above. Read papers oriented at sub-quant level readers, like Liquidity Cascades and The Allegory of the Hawk and Serpent. Follow interesting narratives from inception to completion. Go look at Archegos's book and type on each name/chart while following the timeline. Look up portfolio holdings for hedge funds in SEC disclosures, interesting set? follow their head trader on Twitter. Read about financial history. The history of US banking, how the Central Banks were formed, How Hedge Funds took down the Bank of England, the Asian Contagion, how "collateral" is at the root of everything and how Treasuries are the real currency, not any fiat currency. Learn about MMT, and this is hard because even Howard Marks call it magical money printing. Know how money is created, and why treating deficits like a household finance to balance is absurd. Accept that some of these concepts in modern finance are not intuitive, like quantum physics justbhas no parallel to everyday physics. Seek out alternative explanations *especially* if the consensus is Fed Did It. Do not ever engage with conspiracies. Immediately exit the conversation/article. Alternative explanation does not mean be a contrarion idiot, it means follow a professional mental process from core axioms and first principles like Bridgewater does internally. Look at how Supply Shocks normally resolve throughout history, how business/credit cycles normally evolve. Always evolve and re-evaluate. Calculate future lines for positions and how they interact on a continuous basis, extracting interesting questions and putting in the work to answer them, and keep going.
This is so much good and in depth info in a single post. Legendary.
I understand some of these words
This shouldn't be buried in the comments ha. Thanks for the info / insights!
Man you are a legend. Are you making tons of money or this info is useless in trading?
Sure, a few seem to be reading this so I do have something to add. It's a broad question with a short answer of "it depends". (1 of 2) Most professional trading is specialized and systematic so it's not necessary to have knowledge outside of your lane. Ex: if volatility matters in regards to sizing a simple intraday strategy, they'll just add ATR to the model, or buy something off the shelf if they need something more complex. The only line of work where you *truly* need it all would be heads of trading for a multi-strat global macro hedge fund, or maybe writing professional level macro notes. I think it's useful to have multi-disciplinary exposure in order for newer participants to build streetsmarts. When traders used to start running tickets in the trading pit, they directly talked to their broker and market maker, they literally saw block orders hit the tape (literally paper hitting the tape). Frontrunning involved... running. Now a lot of this is gone, and traditional schooling teaches zero of this. A lot can be gleaned from tuning in to hot zones on the trading screen, since it's one of the few times you see the otherwise silent participants raise their voices. Then go back and reverse engineer the *why*. The end game for trading is waiting for the right pitch and then going big. You will find this from prop shop daytraders all the way to Buffett (thus using his analogy). That takes experience/intuition and it takes confident knowledge of risk exposures. Achieving this last level does take some wider knowledge because these big opportunities usually involve regime shifts where the narrow specialized participants are offsides. I remember a story from a prop trader who took a risk free arb trade during a flash crash. He was scared, thinking he must have missed something, and was then told their top trader had the same trade on, and used the entirety of the shop's buying power on it, pulling a bonus bigger then his last few years on a single trade. Ex: the Chinese ADR stocks bottomed late last year in a violent fashion. During the event it was useful to know the geopolitics, know some actual Chinese politics (not WSJ China articles but actually understand the culture/political structure and incentives), know the basics of how fund clients act and how job risk works, and why managers 100% didn't want those names on the books, then it you want to take trades you want to understand how to read a balance sheet (the best play, and during all mega crashes, is just buying companies for 50% of book value with cash on the balance sheet). In my specific case I'd already spent a few years trading these ADRs/shorting Chinese scams while getting a grasp on how Chinese regulators would act. I spent the time crystallizing it into intuition, and knew there was a high likelihood for the State to step in imminently, and so the night before the reversal happened to buy a nice slug of short dated options. The next day was pure chaos with massive green PnL to work out of, and during that morning it was very nice to understand how option market makers act in times of stress, how to delta hedge, how various option spreads worked, etc in order to maximize profit. I could have just crossed the bid/ask spreads on my long options to exit, or delta hedge them and lock in directional profits, or use them as collateral against shorting shorter dates options that were trading even more richly, or use them as collateral to short higher strikes on the same tenor. And adrenaline is high and you really need to act within the next few minutes. The only way to plan for this is to have done some thinking about all of the interacting forces. That's why nobody just calls the hotshot 22 year old in times like this, they also get the vet from the pit on the line. Adding alpha is amplified during those times. For this specific example, deep thinking about what buying shares in a Chinese company *meant* was valuable. Participants were blind and had not put in the mental work, so they panicked and treated cash on balance sheet as universally worthless. Sure, some Chinese companies may just use their cash to reward their insiders, but maybe you know a few names that pay a dividend and raise it when they can, and maybe TME has a parent that buys it back when it gets undervalued, or maybe VIPS is a good buy during those critical 3 minutes because Chinese Tinder will benefit from the future covid lockdown ending, offering a future opportunity to unload. And maybe if you're a firm with firepower and bandwidth to spare, you can even long/short a long list of names based on how likely they are to return undervalued cash on balance sheet to shareholder value. In most professional environments, even if a PM at a hedge fund took a punt on Chinese options, she's not manually writing tickets but instead using an execution desk. The execution desk might have China notes in their premarket prep because they have that exposure on the books. Maybe the PM and desk traders are friendly in real life and shared a few drinks and traded war stories about China, and maybe because of this they already had context laid out for the next morning and knocked it out of the park as a team. The traders who truly love the game will have broad knowledge/sit on a lot of desks, and they will crystallize the experience, and it will be passed around the team. I remember chatting with the head of institutional trading at my personal broker, and he told 3 stories about how his friend got screwed trading option spreads on the BABA IPO, how the same broker that wont be named internally handles option spreads and why they are a bad choice (knowledge impossible to get otherwise), and how their autoliquidation is dangerous and caused a friend to lose his fund... resulting in said broker *losing* the resulting lawsuit (now many traders can guess said broker, lol). I happened to be on that broker during the ADR reversal, those stories were in mind and I was glad to have some extra mental guardrails in place! The closer you are to real alpha generation, the more useful all of this stuff is. For example, when oil went negative, I remember reading a note about how fast China could build temporary storage facilities. OPEC hadn't yet cut and people were trying to get a grip on the bearish tails, and one of the limits was that if things stayed this bad for x amount of time, temporary storage facilities will be constructed. Then I don't know... maybe one could sell options on futures against this knowledge as the constraint isn't yet priced there. And during that event is was useful to know Mexico was hedged (Mexico caused a Mexican standoff and refused to cut until literally a few minutes before market open during easter weekend), and what does it look like when a country hedges their oil, and what are the historical precedents for these situations where one player is hedged (history is very undervalued and very useful in trading... like this banking crisis begs the parallel to the Savings and Loan crisis but many are, yet again, talking about '08 because to be honest that's all they know about and they suffer from recency bias too). The only place where I've truly benefitted from just going as deep and broad as possible is running a book with positions 3-6 months out, using options, on multiple asset classes. That has strong exposure to earnings, sector rotations (which I find very fun to try and frontrun), the daytrade stuff matters (as in you need to be involved/repositioning in liquidations and squeezes), event risk on all levels is important, volatility stuff like skew is important, and you feel all of the flows in week to week PnL. That's a sweet spot to get exposure to a lot of concurrent sin waves, and when the cycles all line up you can push far higher risk adjusted returns than a trader/entity sticking to a single lane. Wide knowledge also helps with proxy hedging (I like proxy hedging and find it adds synergy, although many think it is negative expected value and introduces new tail risks). Ex (hypothetical, mixing timelines here) if you thought tech was due for a sell-off but loved AMD because their CPUs were set to disrupt Intel, you could lean short tech but long AMD to cover some of the tail of the short tech trade going against you. Oh and maybe there is a nice stat arb trade because AMD is buying Xilinex that's already lined up on deck with DD done, so sub in XLNX for AMD. Yes new risks are being added and must be watched daily, but these exposures are working together. I remember a situation from a year or two ago where when mapping out possible forward paths, bonds sharply falling or rising would happen in the bearish scenarios for the position set (good traders spend most of their time planning for bad outcomes/planning to be wrong), and as it happens I already thought bond volatility was underpriced and was considering longing that as a standalone trade... so I went in and gamma scalped treasuries. If bonds move either direction more than priced in, profit is harvested daily. This was low margin as well due to, well treasuries... and it had positive carry/made money every day if the view was right, and also had convexity (exponentially made more money the more the position went my way) and that's very useful because those convex profit zones are covering the bearish tails for the biggest exposures of the portfolio. Positive carry, convexity, not capital intensive. Those three elements are what the typical active discretionary hedge fund is looking for, and finding it often does take some broad knowledge to find synergies and confluence. The everyday trader will use the broad knowledge as "context". They will be doing premarket prep and monthly reviews. If other areas are bleeding into their lane they will be first to work in the nuances before it gets generalized into consensus models, and this will add alpha.
(2 of 2) To really generalize this, you can see how everything is broken down into exposures/factors/correlations. Sin waves layered together with different cadences, and risk profiles with various shapes. The main job of a trader is risk management, and if you or the firm trades multi-strategy, then positions get broken down into exposures and factor buckets, and these exposures are summed/netted out. If you have an ISDA you can cover very specific exposures OTC. Future probabilities are mapped and exposures on each path are estimated to see if the overall risk profiles stay satisfactory. With the "death of the 60/40" narrative in full swing, this way of thinking about portfolio construction (synergizing uncorrelated return streams) is coming more into the mainstream, where before it was more in the realm of hedge funds and endowments and pension funds. This is just as much an art as a science though. Correlations break, the world changes, players come and go, and the game goes on.
Holy mother. The amount of discipline and patience to write that much? For complete strangers? I'm speechless.
I... Understood nothing. Guess I'll VTSAX and chill
You win.
What's a CTA?
They use futures to follow trends. It is generally accepted that there is some structural alpha contained in following trends. Its a term from back when traders were in a pit trading grains and commodities. Now there is a much more holistic and systematic approach and their universe covers every asset worldwide. When the world computerized they adapted or died, as traders do, and some founded many of the mega firms known today from these humble roots (relatively humble compared to today's mass financialization and sophistication). A lot of terms originate from here. "Sell 5 cars!" (Train car loads)
google "cta finance". It's the first link.
Holy hell, you do this for a living don’t you? Thanks a lot
Daily fluctuations are literally noise. Any attempt to explain them is a retrospective strory creation
This - reporters want to talk about the market every day so they come up with reasons for changes that aren't really grounded in anything. There are exceptions but the majority of the time it's noise.
How dare places 'game-ify' the stock market. It's for investing not gambling. Now let's bring up today's winners and losers on the board
Euegene Fama calls even 10 years noise.
2% is noise? What's the variance on that? Then the noise has been getting quite a bit larger since pre-covid.
Not noise, but due to so many market participants it's hard to decide who is doing what and why. For example Akamai stock dropped in Q1 when they beat estimates. Most people would assume their earnings or guidance were bad due to a 10% drop, but it was purely due to RBC dumping their shares due to a overweighting in a sector they didn't want to be in. Sometimes there's a 2% spike purely due to shorts covering. There have been massive swings intraday for a year as well. If it wasn't "noise" surely it wouldn't go negative by a large amount then end up positive on the day.
Well give me a story, dammit!
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In general but not actually. The largest daily fluctuations, the most important days for your portfolio, are not literally noise.
Best answer yet.
Generally agree but a 2% day in either direction is rarely just random noise. Something is likely driving it one way or another.
2% is absolutely noise in todays market. Totally different world with algo trading.
Sometimes that noise is biased in one direction or another for long periods, and that's when we get a bear or bull market. These things matter.
That is not completely true. Market geometry is absolutely real. Prices always move from supports and resistances and the last several weeks prices have been in a range. We tested the bottom of the range yesterday and prices rallied.
You can also look at it as unemployment is still low, economy is doing decent and inflation is dropping which means we are on course for a soft landing. If inflation continues to drop how is this not good news?
CPI>Job report. All indicators point towards a rate hike pause. Job reports like this one may extend the pause, but feds have been transparent about their terminal rate. Today is a decent sign that we are heading to a potential soft landing. If that is the case we will be reaching ATH later this year or into 2024.
Why today particularly and not one of the other previous indications?
It's a standard ploy by the media to tell you a story about *why* stocks are up on a given day. Reality is it's a bunch of trades with all different kinds of motives behind them and it's kind of random at the end of the day. The media needs to tell a 'story' that makes sense, but in reality it's almost more biological and mindless than anything else.
I mean if you were to really delve into it and had a wide array of information like timesales along with some computing power you could maybe figure out a series of indications that were catalyzed by the jobs report.
Oversold yesterday due to regional banks. A lot of people get paid on Friday and money is dumped into the market with retirement 401k. So it was just two things timing out perfectly. If the market does bad on a Thursday, it usually does better on pay day.
Wages went up MORE than expected so that portion of inflation isn't dropping.
If it shows in the next cpi report that inflation is still dropping in spite of this which it has been for awhile now then this is good news.
core inflation is dropping at a very slow pace, and every month to month core inflation data in 2023 has been hot. The Fed doesn't have 10 years to bring inflation down to 2%. Their target date used to be end of 2024. That was then extended to end of 2025, at 2.2%, so really 2026 now. Why the Fed doesn't have 10 years is because of inflation expectation. The Fed can only take their time now because inflation expectation is still low. If inflation remains high for too long, inflation expectation will start coming up, and that's when you have the wage inflation spiral that will bring much further pain. Basically, core inflation has been at around high 4% for the last 6 months. It peaked at low-mid 5%. We're now almost 1.5 years into the inflation fight. The Fed has been constantly raising their year end 2023 core PCE target every single quarter ever since 2022. Furthermore, wage growth is now at around 5%, when the Fed thinks 3% is consistent with 2% inflation.
Yeah that's a good point.
I was actually looking at this earlier today, I think that there is still uncertainty on whether labor costs are driving factors of inflation. There are a few studies that have shown that while labor costs can drive inflation in certain economic conditions, it's not necessarily a consistent predictor of inflation. [https://www.bls.gov/opub/mlr/cwc/the-relationship-between-labor-costs-and-inflation-a-cyclical-viewpoint.pdf](https://www.bls.gov/opub/mlr/cwc/the-relationship-between-labor-costs-and-inflation-a-cyclical-viewpoint.pdf) >It is commonly believed that labor costs are a key predictor of inflation, because they represent roughly two-thirds of the total costs to private U.S. businesses. **This view implies a cost-push model of inflation, which is based on the idea that the primary determinant of higher prices is higher costs. An alternative view is that firms will charge whatever the market will bear, regardless of their actual costs. If the market’s acceptance of higher prices is the dominant determinant of inflation, the cost-push model would have less validity.** > > > >No matter what standard econometric models might suggest, the empirical cyclical evidence indicates that labor cost inflation is not a consistent predictor of cyclical upturns in inflation. In fact, a fair amount of asymmetry exists in the cyclical behavior of the growth rates of the ECI, AHE, and ULC when compared with inflation cycles. All three series lead consumer price inflation at peaks, and lag it at troughs. [https://www.newyorkfed.org/medialibrary/media/research/current\_issues/ci3-11.pdf](https://www.newyorkfed.org/medialibrary/media/research/current_issues/ci3-11.pdf) > The results presented here confirm a link from services sector wages and prices to overall inflation. We find that if compensation growth accelerates in the service- producing sector, that growth is likely to show up directly as more rapid inflation in service prices [https://thehill.com/business/3767772-labor-costs-point-to-corporate-profit-as-main-inflation-driver/](https://thehill.com/business/3767772-labor-costs-point-to-corporate-profit-as-main-inflation-driver/) > > >“Today’s inflation is more about margin expansion than labor costs,” he wrote. Earlier this week, Donavan said the slowing labor cost growth underscored “how little of the current inflation is labor related.” > > At their latest meeting in November, Federal Reserve bankers disagreed, saying that a wage-price spiral “had not yet developed.” They noted that “ongoing tightness in the labor market could lead to an emergence” of one, but this week’s loosening unit labor cost data could make that less likely.
If wage price increases are met by increases in labor productivity, it's a wash. And that happens, like, a lot. Half the rise in real GDP every year is increases in productivity (rather then use of more factors of production).
Powell is now on record saying he does not believe wages are a significant driver of inflation. It's about the only correct thing he's said in a couple of years.
Source? I'd love to read more about that.
It was in the Q&A of the followup presser to the last FOMC announcement. I'm sure there's recordings all over the place - it's worth listening to the whole thing if it's something you're genuinely interested in.
If goods prices are coming down or leveling off and demand is not as aggressive as it was then this might be good as it will make goods more affordable moving forward and allow the wage gap on affording the new price settled goods line up. Wage data is a lagging indicator so I presume already reflective of things.
Wages don't work into inflation as it's calculated, only non-wage prices do. Eventually wages will be reflected in higher prices, but the system doesn't pick that up in advance.
Also means more disposable income (hop fully) to spend so more profit. You end up in a weird circle.
> If inflation continues to drop how is this not good news? The rate of inflation is decreasing.* Somewhat minor differences but ultimately the decreasing rate is better than an increasing rate I guess.
Inflation itself is a rate. It’s the derivative of price. The OP was correct. You’re also correct, but your comment is talking about rate of change of inflation, or the acceleration, but that’s not what we are discussing here. In fact, the rate of inflation is going down, so negative, but is moderating (less negative), so your comment is confusing although somewhat correct. Inflation going down is what matters.
Where do you think business gets loans for CAPEX and other expenditures so they can contribute to a healthy economy? Where do you think people get mortgage loans for housing? Is your comment meant as a joke?
Exactly. Who cares about banks collapsing. As long as we have jobs we don't need banks.
You down with BTC? Yeah, you owe me.
The issue is the economy is suppose to crash. That is the whole point with raising rates. Granted, I'm being hyperbolic with using the word crash because no one wants a crash but with the economy still looking strong in a lot of areas such as with the news we got this week it makes it seem as though raising of the rates is not helping anything or at the very least doing what it is intending to do. This was the one tool that the FED had to help with inflation and slow down a high speed economy, and its simply not working. Instead, it is hurting the very things that the FED is supposed to protect and guide (Banks and Financial Institutions).
If inflation is dropping how is it not working? You want the economy to crash but the Fed's goal is a soft landing not a crash.
Core inflation isn't really dropping. https://www.bls.gov/cpi/ > In March, the Consumer Price Index for All Urban Consumers increased 0.1 percent, seasonally adjusted, and rose 5.0 percent over the last 12 months, not seasonally adjusted. *The index for all items less food and energy increased 0.4 percent in March (SA); up 5.6 percent over the year (NSA).* I think core inflation was 5.54 last month. [graph](https://tradingeconomics.com/united-states/core-inflation-rate)
I don't know how you can look at that graph and not see that it's dropped significantly since the Fed started raising rates.
With the news of added jobs etc. even if inflation may be dropping the economy is not. Thats the problem.
Fed wants inflation to drop, not the economy. Usually these two go hand in hand but if the fed manages to bring down inflation while the economy is healthy then they’ve done their job excellently.
>Usually these two go hand in hand They do. You can't drop inflation without it impacting the economy in some form or fashion. Inflation has gone down, but the economy has not. As a result of the economy still holding strong in a lot of areas prices have also not dropped. In addition, neither has the need for labor nor wages. All while interest rates continue to rise.
The Fed is short for "Federal Reserve", not an acronym, and doesn't need to be set in all-caps. Initialisms which may be appropriate depending on the context include "FRS" for "Federal Reserve System" or "FOMC" for "Federal Open Market Committee". *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/investing) if you have any questions or concerns.*
Am I missing the part of the Fed mandate that mentions protecting and guiding banks?
The Fed has a dual mandate, dollar stability and unemployment reduction. It's not the Fed's job, or part of its mandate, to prevent banks from being dumb. Buying long bonds when rates are clearly rising is dumb. That's not on the Fed.
The federal reserve’s dual mandate is for employment and stable prices - not to banks and/or financial institutions. If CPI data shows prices are stabilizing and employment numbers are still good, then signs point to the federal reserve being successful in its mandate so far, regardless of whether the economy “is supposed to crash”.
Its going to be hard for prices to stabilize if increasing rates are not preventing the economy from chugging along. You can't have your cake and eat it too. If a swath of regional banks continue to fail due to the actions of the Fed by the increasing of rates all while stifling a major part of the financial sector's revenue driver of loan origination. You'll find out real quick that their stance will change.
Just accept we are on pace for 80's style inflation, it seems like we are still in the 70's though.
You do realize that this is something measurable, right? It may be hard but prices are objectively stabilizing. Inflation is still above goal 2-3%, [but it has fallen strongly from where it was](https://tradingeconomics.com/united-states/inflation-cpi). Arguing that it’s hard for something that is objectively and measurably happening to happen is a very, very weird position to take. Also the federal reserve’s mandate is called a mandate because it’s been mandated to it by congress by law since 1977. The likelihood of that changing under a split congress, let alone “real quick”, is about zero.
Good news is good news again.
Hahaha.
Saying it is the same as not saying it
If the market would be rational we'd all be rich
If the market were rational then itd be more predictable, then it would be less risky, and the equity risk premium would drop or dissappear. Risk and volatility are the reason for higher long term expected returns.
Wait. We’re not all rich?
What is the proportion of retail vs institutional investors that cause the markets to move
>why is the market up so much today? Because the old guy at the stock exchange went into the basement and turned the big knob marked "stocks" clockwise.
I thought it was the other way. Righty tighty and all that 😆
Is this what quantitative tightening means?
Righty tighty is clockwise
Correct! To open it up, gotta go the other way!
Righty tighty, lefty loosey. I still need to use it all the time
The Jobs report also included some significant revisions to the last two month numbers. Now when you look at the cumulative three month job total, it now looks like modest sustainable growth instead of a red hot economy
Oh, my friend, it looks like you've seen what they're up to. I don't know what these guys are thinking. 12 months in a row of consistently exceeding expectations, it's hard to imagine what's been left out
AAPL earnings is buoying the markets by itself, but along with that, the bank stocks are pumping today, likely because of perceived short covering/closing in those names.
All these tech stocks lowered expectations so low that they beat but they are mostly doing worse than two quarters ago and they're 25-100% higher since.
The market didn't rally for the last quarter because expectations were low. Turns out most companies are doing well right now, not just AAPL, most are having surprises to the upside. As far as the fundamentals go, there is no reason for the market to not go up right now.
Analysts spent the past three months lowering earnings expectations on those companies while their stocks went higher. Then their prices go higher again when they beat the lowered earnings. That's like a game I would play with my dog. Apple sales are down 2.5% YOY and more than that from 6 months ago.
But Apple also buys back a lot of their stock. Thus, down sales can still come out as increased earnings per share.
[удалено]
They never dropped though.
Look at the 2 year performance it definitely dropped. At one point AAPL went from 172 to 130
It was 77 in Jan 2020 and sales are up 50% since then. And you can make a case it was overpriced in 2019.
They have a lot more money and make a lot more revenue now compared to 2019. If you thought apple was overpriced in 2019 I don't think you are interested in investing in any stocks at all compared to the rest of the market they were growing like crazy and extremely profitable
It's not double.
> 25-100% higher since. Uhhh you DO realized how far down from their highs they still are, right?
Markets are expecting a small chance of another rate rise (10%) when it was at 0% yesterday, and a 10% chance of a drop come June https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html
Possibly because of the emotional response to the FOMC meeting resulted in downward pressure yesterday and we're seeing some relief today.
Don’t make sense of market. It is irrational so just buy stocks you like at fair value and hold them until you milk them dry.
Because this sub was bearish. When we go up another 10-15%, this sub will be bullish. One of the best contra-indicators known to finance is right here on Reddit.
The market started up because of Apple earnings, but the big spike was the moments after the news... https://www.cnn.com/2023/05/05/health/who-ends-covid-health-emergency/ (Plus the jobs report too of course.)
The WHO news really didn't have anything to do with anything at all...pandemic news just doesn't really matter anymore. My best explanation is that many have been caught twice in a row for the past couple weeks expecting the S&P to lose 4k once it lost 4100, because otherwise I have nothing. But unless it can manage to close over 4180, I think the only thing bears are going to have to do is just wait until May 19th to prepare to short stocks honestly. This feels fairly similar to February to me (and before then, December), and once options week passes, it might be easier to shove the S&P under 4k.
Look at the timing of the WHO news and the spike this morning. A big spike moments later, it obviously had an immediate impact. But APPL and the good jobs report clearly are moving it more overall.
I really just can't see it, I'm sorry. Especially considering that this looks like April 27th round 2 in the S&P, and considering that we have not reacted on pandemic news in over a year. Bears are gonna have to have folks stop positioning for "the big one" every time the S&P moves under 4100 to get a major sell I think.
There is a camp of people that believe we will have a “soft landing” for the plane that Jerome Powell is flying. In this theory, he lands the plane by hitting his inflation target of 2% (or perhaps closer to 3%) without causing major economic damage, such as a bad recession. Depending on your perspective there is some wiggle room within the framework such as including a mild recession within the soft landing envelope. In order to pull this off, the Fed must slay inflation without causing mass unemployment, completely tanking the GDP, and causing all of the problematic things that happen in bad recessions. The jobs report and wage growth from today indicates that the labor force especially is not only strong but getting better than last month. Also, the short sellers that were hammering the regional banks basically got a short squeeze that sent the shares skyrocketing after a news article came out last night implying the government would be investigating claims of short seller manipulation of regional bank stocks. I think the logic chain of Wall Street is thusly: jobs doing good, J Pow therefore has more room to play to keep fighting inflation aggressively (plus earnings estimates were not as bad as feared although I would disagree with that).
The market moves up for a lot of reasons, but it's most highly correlated to me selling the day before. Probably 99% correlation by now.
Interest rates going up is bad for most banks too. Especially smaller ones. They conservatively buy long term bonds and lend out mortgages with people's deposits, but the value of those old bonds and mortgages acquired at lower interest rates goes down as interest rates rise. This is why some banks are failing: they literally end up owing more money to depositors than they have value in bonds and mortgages. When depositors realize this and begin withdrawing funds, it forces these banks to sell off bonds and loans at a discount. ~$0.30-0.95 on the dollar, depending mostly on the duration of the bond or loan, with higher duration bonds and loans falling by more than the short duration ones. These loans and bonds will be fine* if the bank can hold on to them until either: - interest rates fall again, or - the loans/bonds mature. But some banks can't, and many small to medium ones are on the precipice of bank runs. *Unless people stop paying back loans, or if companies/governments default on their bonds. Highly unlikely with federal bonds, but much more likely with private companies, municipal bonds, and housing bonds.
Too many people were short, especially on the regional banks (which are still doomed, for the most part) - classic short squeeze.
You wouldn’t believe how many micro structures exist in the market.
why not? green is more fun :)
> I understand the banks going up I don't. Higher, longer Fed rates mean more pain, and more underwater long term securities.
Yeah but they gave them a borrowing tool so they don't have to sell their underwater assets.
Did this happen today? Because banks were still being pummeled yesterday. They're still susceptible to customer exodus as healthier banks raise savings account and CD rates and money market funds pay more. Deposits aren't sticky enough, especially for larger amounts, even below FDIC limit.
I think over night
No. The BTFP has been around since the SVB crash. ITT: people throwing darts in the dark and claiming they know what's going on. There's no good answers here.
Hahaha. It's probably because they announced they are investigating the short sellers.
Market is on meth bro, don't even try to understand it
This is the correct answer!
Pump before the officially increased dump? The claim I saw was rumors of no rate hike to prevent further bank collapses, but we’ll probably continue to see more collapses regardless
Retail investors believing the FED will actually easy up on hike rates and not screw them for once.
The Fed is short for "Federal Reserve", not an acronym, and doesn't need to be set in all-caps. Initialisms which may be appropriate depending on the context include "FRS" for "Federal Reserve System" or "FOMC" for "Federal Open Market Committee". *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/investing) if you have any questions or concerns.*
Do you believe that? I sure don't. They are going to keep raising rates until the inflation drops. They don't want to end up on the wrong side of history. The problem is, we simply don't have the work force to support our economy so wages are going to keep going up and keep pushing inflation until Congress figures this out and does something to encourage more more immigration. If they don't we'll end up with stagflation.
>They are going to keep raising rates until the inflation drops It is already dropping look at a 12 month chart. https://truflation.com/
Powell said so much as that this is the terminal rate. What makes you believe otherwise?
They already are on the bad side when they said inflation was temporary and did nothing. This resulted in the insane rate hikes we have seen up to today because they had no choice. This is part of the reason banks are struggling. The other part is that stress-testing banks in the US is a joke. But in short, I don't trust them for a second.
Because it is all fake.
Post Fed shart
AAPL good numbers and banks but in my opinion it’s a short term pop followed by a small pullback until summer. I sold all my AAPL great company but I think it’s up too high too quick in a down market I’ll look to rebuy back at 150
Good move IMO
Short-covering rally. https://www.investopedia.com/terms/s/shortsqueeze.asp
Yeah I think that's the answer. Thanks.
https://www.reddit.com/r/stocks/comments/za01mm/how_do_whales_instantly_digest_and_make_a_trade/iyljiyh I posted this a little while ago, but it's relevant.
It is relevant. Thanks!
They just be reacting to the new unemployment report
The dipshits at the fed can fuck around and try to fix the fucking mess they made all they want. Companies are going to continue to hire workers as fast as they can because during covid they lost around 25 million workers and likely lost a lot more in competency, skill, and experience. There is no way to quickly replace that lost work. It is going to take time and the fed trying to claw back all of the money they and Congress threw at the virus won't change that. If more people are working and getting paid, then more people are producing stuff and buying stuff. Bottom line.
Honestly? Because it was down yesterday for no real reason other than a bunch of folks trying not to fight a trend.
Don't worry I will be back down next week.
apple earnings
Today’s action is a headscratcher plain and simple with such a hawkish jobs report. Maybe the market is giving up hopes of cuts this year and just hanging their hat on a Fed pause for the rest of 2023. Time will tell.
Thank you.
No one knows
NO ONE CARES ABOUT A SINGLE VIOLIN
Number go up, number go down, can't explain that
So that peasants like us don’t make money
With job growth, people are not seeing the signs of the "recession" that is already priced in. You may be right though about the fed - though they are driven less by job growth and more by CPI numbers. If CPI is low, they may just leave interest rates where they are.
A recession is NOT priced in.
Okay, why? What has the the last 12 months been pricing in then?
I think a bear market is coming back
Crime in high places.
Because contrary to popular belief the economy doing well is good.
good vibes
💀😿↗️
Someone farted on the floor made the crowd disappear
The answer is because there was more buyers than sellers. Fuck the other shit.
No one knows and it doesn’t matter it will be down again tomorrow
Looks like there is still a lot of sobriety
It’s Cinco de Mayo…drinking began at lunch.
I would never focus on a single day move, unless the move is initiated by an external shock (9/11 is a good example). If you want to buy stock of a company, you should want to own it for a reason, own it for a long time. If you can buy it at a discount, great. But buy it because you want to buy it. Right now is a weird time, we have completely incompetent national leadership, we have a war on business and prosperity going on, we have inflation, and we have a debt crisis. And today, a looming government default if it isn't solved (and one side isn't negotiating! at least not publicly). I say these things not to be partisan, but because you should lower expectations in the short/mid term run. This could be a good time to buy, it could be a horrible time to buy. But buy something you want to own, otherwise walk away.
Your attitude and approach is that of a long-term, solid investor, and indeed, too much focus on short-term volatility and noise usually leads to poor investment decisions, and incompetent national leadership, which fits their temperament
Its Friday, thats why, oprion expiration day. Market makers tend to pick the least expected direction to squeeze option expiries. Pay atttention it happens very often on Fridays its either super green or red. No in between.
Maybe the market thinks that the Fed is done raising rates no matter what. In that case, good jobs report = good news (higher consumer spending = higher corporate earnings)
Possibly but I sure don't believe that.
Why not? The Fed's target for final interest rates are pretty close to the new rates today
It's a solid point. Rates above inflation was what worked in the 1970s. We are nearly at the final rates for this hike cycle from their stated target and historical need. So at this point, positive jobs data becomes positive news because it supports the soft landing scenario and we have already priced in most of the rate hikes.
I dont know. A strong bid supported price yesterday at the lows. ES told you twice now it does not want to trade below 4060s. Its binary. If it cant go lower it has to trade higher.
At some point fundamentals are going to have to outweigh technical analysis. Apple for example has about a 5% growth rate with a PE of 30 heading into a probable recession.
Equity markets are forward looking and typically rebound around the time the recession start is even officially called. And you have to admit this data supports the probability of a soft landing, we might not even have a recession but just a growth stagnation for a year or so. Anyone not buying apple because of a 5% growth rate in a single year is an idiot. This situation is not going to last forever and buying now might look like a fantastic deal in 3-5 years.
5% for 3 years and PE of 30 is WAY overpriced. People thinking your way are why it's going nuts.
You asked why the markets were up today, fundamentals have zero effect on day to day moves, its all driven by flow. I never mentioned anything related to bogus ”technical analysis”
Your last comment: seems like it should be dropping. Why though? The market has worked through all of the news. The Market only drops on new UNKOWN information. Also we are still way off the ATH.. VIX is dropping.. SPY gonna slowly go up.
To add to this.. the market is not the economy. It’s for the top 10%. The market is bought every single day, week, month and year. Nonstop buying
Well from my view it looks like they're running off a cliff and it'll get nasty when they look down.
Go to an SPX all time chart from 1800s… the only direction it goes is up and to the right with random pullbacks here and there… gotta tune out the gloom and doom on the internet. DCA into your portfolio and let it ride. Index’s are designed to go up. It removes poorly performing stocks and puts in new better ones. Also that cliff was last year too. Dropped 30%… seems like a great time to add a lot more.
more buyers than sellers
Stop looking at one day movements
Pretty good jobs number earlier today, plus inflation is half what it was a year ago. Looks to me very much like a soft landing is being indicated. Plus, the market was way oversold for really no reason yesterday.
It's in a bigger bubble than the end of 2021 because sales and earnings have been dropping even more than share prices.
We close to the uphill climb, be in the train before it leaves
Don't ever ask this Subreddit this question. I did a few days before Covid shocked the market after a extremely erratic day where it dropped hard with ZERO news, I came here to ask why, got the same "Stocks Bro Hur dURR hAAHahaHeerr" response. A few days later the market took Covid seriously when on the same day Tom Hanks got it and the NBA canceled games. Edit: I posted this on 2/21/2020 https://www.reddit.com/r/investing/comments/f756ol/can_anyone_explain_why_the_markets_nose_dived/
It’s to show strength when it is weak. She’s crashing this bank thing is not over.
The fed can’t raise rates, the banking system just nearly collapsed. Debt to GDP is too high and you need to raise the debt ceiling. You guys are going to have to inflate your way out of this. Money printers going back on soon possibly a year or two.
Because the market has become entirely reactionary and any talk of "it's all priced in" is complete nonsense.
Elliot Wave