The narrative is rising to extend the trading day. A Bloomberg article questions the rationale for such a change.
According to the newswire, the regular market runs for 390 minutes on a standard trading day, however it might by the last 10 minutes that may only matter. Bloomberg states a third of all S & P 500 stock trades are now executed in the final 10 minutes of the session. That is up for 27% in 2021.
The explanation for such is the massive boom of passive investing as passive investing typically buy and sell at the close, since the last prices of the day are used to set the benchmarks, they aim to replicate. As noted several times, 55% of the S & P 500 are now in passive investments where price discovery is not a factor.
Fresh evidence suggests the trend may also be hurting liquidity and distorting prices.
A corollary to passive trading is algorithmic or technology-based trading. The SEC states about 90% of equity trades and 99% of Treasury trades are via technology. This type of trading does not care about fundamentals but rather where prices may be in five minutes.
There is ample evidence that this type of trading greatly affects liquidity or the ability to buy or sell a security without impacting prices.
Bloomberg’s Economics Fed sentiment index—a natural language processing algorithm—indicates that in December that FRB Chair Powell delivered a major pivot in monetary policy as there was over 60,000 Fed headlines suggesting such.
Markets soared.
The monetary policy narrative is reversing itself. Depending upon the maturity, Treasury yields are up between 40 and 60 bps in April. Equities started to wobble until last week’s significant advance in several of the mega-techs which skewed the averages.
It can be suggested that a major reversal can occur as the Fed might again change its narrative. Will tomorrow’s post FOMC meeting statement offer evidence of this view?
Commenting on yesterday’s market activity, equites again advance on earnings optimism. Bloomberg writes 1Q earnings are now on track to increase by 4.7% from a year ago, compared with the preseason estimate of 3.8%. Treasuries fell in yield by several basis points perhaps on the news of progress of a ceasefire in the Middle East.
Last night the foreign markets were mixed. London was up 0.61%, Paris down 0.01% and Frankfurt down 0.29%. China was down 0.26%, Japan up 1.24% and Hang Seng up 0.09%.
Futures are flat. The 10-year is off 4/32 to yield 4.63%.
