RBC Capital Market’s Jonathan Golub is no longer sure what’s moving the stock market.
In a note to clients on Monday, Golub wrote that even though the S&P 500 is down 10% from recent highs, in a year that it was widely forecast to rally, there’s “no smoking gun behind the sell-off.”
“We’ve spent the past several weeks attempting to reconcile the market’s pullback with underlying fundamentals,” Golub writes. “While there are always plenty of explanations, the news flow over the past 6-8 weeks hasn’t lined-up with returns. Put differently, we’re struggling to find a smoking gun that explains the market’s behaviour.”
For example, jobs report on Friday was bad: The economy added 142,000 jobs in September, below expectations for 201,000. Average hourly earnings were flat, while the unemployment rate was unchanged at 5.1%. The labour participation rate fell to a 38-year low of 62.4%.
As the chart shows, stocks tanked immediately, with Dow futures falling nearly 2% before the market opened on Thursday. However, after one of the ugliest jobs reports of the year, stocks roared back and staged the biggest intraday reversal in four years.
Of course, there’s obvious demerit in trying to peg a narrative to the stock market’s tick-by-tick moves.
Golub notes that investor anxiety, not fundamentals, is what’s driving the sell off in markets. And as a result, more apparent explanations, like bad data or earnings, are becoming less useful to try and interpret markets.
Like Business Insider’s Myles Udland noted last week, old ways of explaining markets are no longer making sense.
And so as Golub sees it, this lack of coherence means that eventually things will sort themselves out and resolve in stocks moving higher.
Last week, Golub cut his year-end price target on the S&P 500 to 2,100 from 2,325.