The Stock Market

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The US equity market known more familiarly to the average SUV driving American as the stock market is a nebulous system of money harvesting, hedging, betting, buying, selling, and general fuckery that abounds perhaps our wildest imaginations.

Average actions of equity markets

The derivatives market

Unknown to the average mom and pop, the derivatives market of futures, options, swaps, and god knows what other satanic instrument pulls the true strings of the market, due to its inherently leveraged and occasionally illiquid nature. After the rise of payment for order flow and heavy commission reductions with US brokers, parts of this market have become more accessible to the general public, who predictably treat it as a legal glorified casino. Users like BallSac constantly search for the next 1000x instrument, which sadly is a criteria that happens daily in some part of the casino market.

The equity futures market, spanning the overnight hours between the markets close and opening bell, is responsible for nearly all movement of stocks in the last 10 years. How the entire market cap of most of the globe moves wildly in price due to an instrument that trades less than 10 contracts a minute remains a mystery.

Events

Election of Trump and 2017

In the latter part of 2016, equity markets were mostly done pricing in the victory of Hillary "the Hilldog" Clinton, given the relative absurdity of the Republican front runner. With a weak Chinese economy and general non-excitement for Democratic leadership, the indices entered a lethargic period of cooling off as November loomed. As election night carried on, the sudden revival of Donald Trump kicked open a surge of volatility in the futures market, as participants now had to actually consider such an actor winning the presidency. As the nail in the coffin for Dems panned out, the sudden realization that Republican policies could revitalize the economy gave way over the uncertainty of having a reality show host as president, and led to a general rally into year's end.

The following year was a period of unprecedented slowness and grind in the markets. Volatility fell to levels not seen in decades, prices barely moved on a day to day basis, and options premiums were non-existant. In the words of rapper Future, life was good for long holders of equities, especially those collecting large dividends. Even Fed hikes and budget struggles toward the end of 2017 could not stem the upward flow as companies reveled in the new environment. However, all things eventually come to an end.

Volpocalypse

January 2018 saw more aggressive upward moves in equities across the globe, continuing the trend set the previous year. In February however, several companies began to warn of the eventual effects of Fed hiking, combined with potential future slowdowns. Later that month, the markets experienced some down days. As volatility picked up, vendors of volatility products who normally rolled their underlying derivatives across expirations, had to do so under stressful and illiquid conditions. As it became apparent there were simply no offers for these products, panic selling and hedging in equities led to a huge run on the VIX, effectively flash crashing the Dow and eliminating a month of gains in the span of 30 minutes. Some products such as XIV lost so much value in the roll they were essentially delisted, and the suckers investors woke up to almost nothing in their coffers.

2018 and the Trade War

Jerome Powell as Fed chair and general voodoo doll

Following the collapse of the short volatility trade, the markets meandered through until the spring, erasing most of the losses, however, with a much more slippery structure. The equity indices would never return to the period of slow and safe movement as seen after the election, and took on a noticeably twitchy dynamic. At this point the Trump administration took China into its sights, setting off a tit-for-tat economic tussle, with tariffs and other punishing measures aimed at reducing the trade deficit, and supposedly reducing US dependence on foreign markets. Surprising no one, the equity indices generally went wild whenever trade war news revealed itself, either through infamous Trump tweets or after-hours releases.

Global growth, after a strong one and a half years, started to slump at this time. Combined with soft manufacturing data from the US, the continued offloading of the Fed's balance sheet, and the ongoing trade war, led the S&P to enter a volatile correction and eventually a mild bear market, erasing the entire year's gains, leading to a flat year and a waste of time for everyone. Seeing the shitshow unfold, the Fed began to sweat and hold off on its tightening, leading to interesting stupid bullshit recession predictions in the tea leaves of the bond market.

2019 - Cautious optimism

Following a rapid rally in January, investors began to realize that despite global risks, the American economy was still very strong. Despite morons financial advisors calling for caution, the market continued to rally into new highs, even as the continued trade war occasionally hampered events. Luckily, any "good" events in negotiations simply propelled the indices higher. It seems as if nothing could stop the juggernaut...

2020 and Corona

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