Weighing the Week Ahead: Is it Time to Worry about Crowded Trades?

The economic calendar is normal with an emphasis on the consumer. Both PPI and CPI data will be reported, but little change is expected. Central bank fans will have to make do with the ECB Thursday announcement. Democrats will have another debate on Thursday (now down to only ten on stage!) but it is too early to think about policy effects.

In the last two weeks the market rebound has included a change in tone. Thinking about this during my recent travels it seemed a bit like a puzzle. There are pieces of evidence that we have been monitoring for many months. A broader discussion has emerged in the financial media, leading pundits to wonder:

Is it time to worry about crowded trades?

Last Week Recap

In last week’s installment of WTWA, I discussed whether Presidential politics might change the course of economic policy. Usually it is the other way around, but economic success is crucial to the Trump campaign. With trade policy now subtracting a full percentage point from GDP, a deal would improve the economic case. By the end of the week there was some speculation about the political impact of the jobs report, but I have yet to see anyone drawing inferences about possible policy changes. Stay tuned.

The Story in One Chart

I always start my personal review of the week by looking at a great chart. This week I am featuring Jill Mislinski’s version, which combines a lot of information in one picture. The full article also includes several other interesting takes on price movement.

The market gained 1.8% for the week with significant opening gaps for breaking news. The trading range was 3.3% for the week, but pretty small after Thursday’s gap opening. My weekly Quant Corner translates this into a volatility calculation which you can compare both to VIX and to past readings. Among the many other helpful charts in Jill’s post is this perspective on drawdowns.

News You Can Use

Dr. Brett Steenbarger’s new book is now available! Radical Renewal: Tools for Leading a Meaningful Life is innovative in both form and content. While he emphasizes traders, his work has implications for everyone. The format makes it especially user-friendly. When I finish reading, I’ll do a more complete review, but what I have seen so far is great.