Today is Triple Witching Day, which means multiple options are expiring on the same day. By the same token, volume has been relatively average this week.
This week's musings is inspired by Summer movie favorite, "Ghostbusters." The film was released in June, 1984 and was a surprise hit. Here's some trivia about the movie:
This film had fairly standard budget of $30 million, but made more than $296 million at the box office. The original movie was a launch point for an entire franchise - cartoons, video games, comic books, and haunted attractions. There was the sequel in 1989, which did pretty well at the box office in it's own right. Not to mention the recent relaunch in 2016 which has so far produced three films.
The concept of the original film was that of Dan Aykroyd, based on his own personal fascination with spirituality. He has envisioned the film starring himself and longtime friend John Belushi. After Belushi's death in 1982, Harold Ramis, another star of the film, was brought on to help Aykroyd refine the script and make the concept more realistic.
The hit song recorded by Ray Parker, Jr. titled, "Ghostbusters" spent three weeks in the Summer of 1984 at number one. It was estimated that the hit song added $20 million to the film's box office. However, Huey Lewis (the subject of Market Musings two weeks ago), sued Parker, Jr. for plagiarizing his hit song "I Want A New Drug." While the case was settled outside of court, Parker, Jr. later sued Lewis for breaching the confidentiality of the case.
Almost none of the scenes in the film appeared as they were originally scripted. Bill Murray's lines were mostly ad-libs.
The role of Winston was originally scripted for Eddie Murphy. The character was supposed to appear much earlier in the film, but when Murphy ultimately declined the role, the producers pared back the character's scenes until Ernie Hudson was signed onto the film.
Here's what we've seen so far this week...
Triple Witching. Today is the largest expiration of options on a notional value in history - more than $5.1 trillion. One would think that would lend to some volatility, but so far, the market has been operating well with no perceived hiccups. It reminds me of the scene when the boys in "Ghostbusters" meet Gozer:
Gozer: Are you a God?
Ray: No.
Gozer: Then... DIE!
Winston: Ray, when someone asks you if you're a god, you say "YES"!
Stocks are up slightly this week despite some weak economic data on the housing and jobs front. Retail Sales were positive for the month of May, but below market expectations. However, sales were up 0.1% this past month versus down 0.2% in April. The data is a little dated, as we're more than halfway through June.
Redbook Sales came in +5.9% on a year-over-year basis, so there shouldn't be much concern about the consumer just yet. The Atlanta Fed's GDPNow projection for the 2nd quarter is +3.0%, and the major component of that is consumer spending. Both the National Financial Conditions Index and the Financial Stress Index show loose conditions.
Equities have been unusually strong this year, relative to other election years. In fact, the S&P 500 Index is up more than 3% in June, so far. Equities under-performed in May, relative to pervious election years, but is out-performing in June. And yet, there are some soft spots in the economic data that are of concern. Housing Starts and the early Building Permits data were lower than expected. The U.S. Leading Index is still hovering in negative territory. But, until there are more warning signals, it's steady as she goes for the time being. Sometimes, we look for the bad, and other times, we look for nothing but the positive.
Don't Cross The Streams. While there might be a few soft spots in the economy, the consumer, as we pointed out, is still spending money and financial conditions are loose. Things are interesting in that some data points to economic issues and other data supports a strong equity environment.
CEO confidence has bounced back from hitting a trough a couple of years ago. When the metric moves above 50, overall sentiment of CEOs is positive. This would likely indicate future corporate spending, especially from companies with strong balance sheets.
The amount of equity exposure for the average household is high. This is a positive for equities, but also a concern. I don't think this is at 2000 levels because there is not as much euphoria out there. At the same time that equity exposure is at highs, money market assets are also at historic highs (over $6 trillion). So, investors are more balanced than they were in 2000. However, if clients own highly appreciated stocks that have experienced outsized returns recently, some profit-taking might not be a bad idea.
That being said, we're about to enter a month when the S&P 500 Index does well. July has been one of the strongest months in terms of performance over the last 20+ years. The month has produced positive returns at least 79% of the time. Whether we experience some economic softness or keep moving higher, making drastic changes to your asset allocation is probably not warranted. However, taking a little bit of profits, perhaps through rebalancing, might not be a bad idea, either.
Just remember, don't cross the streams...
Disclosures
The information contained herein is for informational purposes only and is developed from sources believed to be providing accurate information. The opinions expressed are those of the author, are for general information, and should not be considered a solicitation for the purchase or sale of any security. The decision to review or consider the purchase or sell of any security should not be undertaken without consideration of your personal financial information, investment objectives and risk tolerance with your financial professional.
Forecasts or forward-looking statements are based on assumptions, may not materialize, and are subject to revision without notice.
Any market indexes discussed are unmanaged, and generally, considered representative of their respective markets. Index performance is not indicative of the past performance of a particular investment. Indexes do not incur management fees, costs, and expenses. Individuals cannot directly invest in unmanaged indexes. The S&P 500 Composite Index is an unmanaged group of securities that are considered to be representative of the stock market in general.
Past Performance does not guarantee future results.
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