Todd Harrison: The Stock Market in Perspective
To appreciate where we are, we must understand how we got here
Has anyone seen Inspector Kemp? He's running around telling anyone who will listen about the riot in stocks today.
He's right -- it's angry out there in the stock market -- but he needs to chill.
The VXO (INDEXCBOE:VXO) under 15 is not a riot.
The S&P 500 (INDEXSP:.INX) in a 50-handle range for three months? Nope, not a riot.
The Russell 2000 (INDEXRUSSELL:RUT) down 7% in a month? A bummer, yeah-but not a riot.
Stocks like Tesla (NASDAQ:TSLA), Netflix (NASDAQ:NFLX) and Facebook (NASDAQ:FB) down more than 20% in the last six weeks? Well, maybe a slow-motion riot...
It's all relative; to illustrate that point, I've included a 10-year chart of the Nasdaq-100 (INDEXNASDAQ:NDX) below. While this complex has been under pressure of late, some long-term flavor will provide necessary perspective.
Nestled within that chart: a housing bubble and bust, the financial crisis, high-frequency trading, extraordinary central bank interventions, countless Fed jawbones, a multitude of economic reports, incredible innovation, and 40 cycles of earnings releases. All things considered, it was a banner decade to own stocks
I will also note that the last five years have been what industry veterans call a "straight-up" tape. The thing about parabolic frolics is that making money is perceived to be a right, rather than a privilege. Yes, we've had this discussion before -- and that's sort of the point.
As more and more firms tweak the plumbing of the stock market -- this is where I perceive the most tangible HFT risk to be -- the process of price discovery will continue. Put another way, if we are to rewire the routing of US equities after all these years, it's akin to changing an airplane engine mid-flight.
Discipline over conviction as we together find our way.
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Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at email@example.com.
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