So, there’s a Wall Street project called ‘Go West’ that’s nearing completion. Intended to invoke the spirit of Horace Greely, the plan is to link Chicago, the Pacific coast, and Tokyo via a trail of wireless towers, fiber-optic lines, and submarine cables. Once done, Go West will enable market data to be transmitted at something near the speed of light. Startup company Alpha Trading Labs, meanwhile, announces plans to bring this ultrafast stock trading to dudes who live in their parent’s basement.
In 1851, Paul Julius Reuter begins sending stock market quotations between London and Paris via a cable beneath the English Channel, having previously deployed pigeons to carry stock prices in Europe.
You’ll recall that high frequency trading, or HFT as the cool kids call it, came to the public’s attention back in 2014 when the great Michael Lewis published “Flash Boys.” Little known to the investing public, electronic trading was already killing off the exchange floors (the NYSE today is little more than a promotional backdrop for listed companies) prompting former floor traders to launch their own quick-trading firms. Alpha Trading, for its part, says it has copied their technology and wants to recruit guys who sing in the Glee Club to use it.
In 2000, decimalization of U.S. stock prices allows investors to buy and sell in penny increments, cutting the price spreads that underpinned profit margins for market-makers.
The company, which launched its do-it-yourself platform in January, has indeed invited anyone with a trading idea and coding skills to try it out. Those who craft successful algorithms can get a chance to run them and share profits with Alpha Trading, whose owners have up to $100 million to allocate to crowdsourced trading strategies. No basement-dweller algorithm is running yet, but the firm hopes to deploy one or two later this year. Guys who speak Klingon at the Sci-Fi Cons think the idea sounds “really cool.”
In 2010, Spread Networks opens a fiber-optic link between New York and Chicago, reducing round-trip latency to thousandths of a second.
The obvious question, of course, is why would a HFT shop worth its precision clock want to recruit any pencil-necked novice with a computer? Turns out revenues in the space have spectacularly cratered due to the multiyear slump in market volatility. So, Alpha Trading – instead of paying for real traders with real strategies – has decided to seek its “talent” online. Guys who never went to the prom may finally have a date.
What the pundits have been saying…
“People put a lot of weight on GDP, and often too much. I don’t think it’s the be-all-and-end-all of economic indicators.”
- Jan Hatzius, chief economist at Goldman Sachs
What people have been saying…
“They (ETFs) are not exempt from things happening in the market, they’re not a magical instrument, but I do think they lack some of the deficiencies of other products in the market.”
- Deborah Fuhr, co-founder of ETF consultancy ETFGI
What the numbers have been saying…
- $768 billion
Amazon’s market value, which passed that of Google parent Alphabet last Tuesday for the first time to date. The week’s selloff in large technology stocks dragged down the broader market, reordering the list of the biggest U.S. companies. However, Amazon’s market cap still trails Apple’s $889 billion.
What the equity markets have been doing…
|INDEX||Friday’s Close||Two-Week Point Change||Year-to-Date Change|
What the fixed income markets have been doing…
|FIXED INCOME||Period Change||YTD||12 Months||Yield|
|U.S. Investment Grade||NC||-(3.0)%||+2.1%||3.8%|
|U.S. High Yield||-(0.1)%||-(0.4)%||+5.2%||6.1%|
What Fund Architects has been doing and saying …
Stocks suffered their largest weekly decline in two years last week, with the S&P 500 plummeting an outsized 5.9%. There were, and are, plenty of issues about which to be concerned, but it’s not unreasonable to think that investors might have overshot the mark a bit. Nearly every sector of the market slid backwards, with technology – particularly the mega-caps — and financials leading the way down. Energy companies fared better on a relative basis.
From here, the stock market could very well experience more weakness. At the least, we’ll probably see relatively high levels of volatility continue for a while. For our part, we tend not to get too worried about these short-term dips and recoveries. It’s easy to forget after a long bull run, but swings such as this are part of a normal market cycle. It’s critical to remain unemotional and systematic about investment.
The first of the month is rapidly approaching and, with that, we’ll have updated results of the Multi-factor Ranking System to share. Stay tuned.
The views in this commentary are those of Fund Architects. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this commentary, will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for your portfolio. Moreover, you should not assume that any discussion or information provided here serves as the receipt of, or as a substitute for, personalized investment advice from Fund Architects or any other investment professional. The information contained within this commentary should not be the sole determining factor for making investment decisions. To the extent that you have any questions regarding the applicability of any specific issue discussed to your individual situation, you are encouraged to consult with Fund Architects. Information pertaining to Fund Architects advisory operations, services, and fees is set forth in Fund Architect current disclosure statement, a copy of which is available upon request. Fund Architects, LLC is an SEC Registered Investment Advisory Firm.