For perspective, the futures markets can be very illiquid outside of the New York trading day, especially in the transition between the end of business in New York and the opening of business for the new day in Asia.Consequently, that’s when some damage can be done in markets, if there is an overwhelming interest by someone to try to move the markets during that illiquid period. That’s what we had yesterday evening when the U.S. stock market futures re-opened. Within 2 minutes of the opening, the S&P futures were down 2%, after a barrage of large sell orders hit. And with investor sentiment already vulnerable, that damage translated into more fear selling by broader market participants when volumes came into the cash market this morning.
But at some point this morning, after a 7% decline in three days, it became impossible to ignore the disconnect between what stocks have been doing and what the economy is doing. We have an economy growing at 3+%, unemployment under 4%, inflation at 2%, a 10-year yield under 3%, gas at $2 a gallon, and a stock market trading at less than 15 times earnings. Stocks are a buy, not a sell.
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