On Friday, the first day of winter, Wall Street has hit by quadruple witching.
But, no, there’s nothing Shakespearian about it.
The slightly better known “triple witching” takes place when the contracts for stock index futures, stock index options, and stock options all expire on the same day. It only happens once per quarter: on the third Friday each of March, June, September, and December.
On quadruple witching day, single stocks futures contracts also expire.
On these days, trading can be extremely volatile as investors seek to stabilize their positions and cut losses, take profits, or set themselves up for potential huge gains by renewing or buying new contracts.
The trading week leading up to the shortened Christmas and New Year’s weeks tends to be crazy because those forthcoming weeks are quiet; and investors feel the pressure to make something happen before the year goes out like a lamb.
In the morning session on Wall Street, stocks listed on the Dow Jones Industrial index were up 160 points by lunch time, with 28 of the 30 trading higher.
Some positive news driving up the Dow along with the other two major indices came from the retail sector, within which anticipations for holiday season spending for this year were met with mixed feelings beginning on black Friday.
“Consumers found their way to the checkout aisles even though their incomes failed to keep pace,” said Kevin Giddis, managing director of fixed income portfolios with Morgan Keegan & Company Inc.
But another powerful driver of holiday cheer on the Street was the word that came down from the Federal Reserve.
The United States central bank is going to hold bi-weekly emergency loan auctions for “as long as necessary” in order to restore the cornerstone of capitalism: trust, especially trust in the credit market and the liquidity of banks and capital. That trust was shaken on a global scale with the U.S. housing market debacle of the second half of the year.
The central banks of the United Kingdom, Canada, and Switzerland are taking similar action.
“It’s a sign the Fed is being nimble in terms of managing reserves and these temporary liquidity problems. I don’t think they will have to do much more but it’s a good sign,” said Kenneth Kim, an economist at Stone & McCarthy Research Associates in Skillman, New Jersey.
The people that this journalist corresponds with on the matter of the economy are largely not concerned with buying less or spending less as they are with spending-that is, consuming-with more forethought. There is also, in general, a great concern that people need to be asked to take more personal responsibility for their financial actions and to stop clamoring for safety nets every time they act foolishly.
On the whole, however, the reflection given to me is that people are enjoying more wealth, even while rising energy costs and the food prices rising largely because of increased corn demand as the government mandates ethanol production remain large concerns.