“This is Not Your Father’s Stock Market”

“This is Not Your Father’s Stock Market”

Kerr Financial Group

Kildare Asset Mgt.

Jeffrey J. Kerr, CFA


October 9, 2023 – DJIA = 33,407 – S&P 500 = 4,308 – Nasdaq = 13,431

Once upon a time, economic news and business headlines were big stock market influences.  Such things as inflation news, earnings reports, employment data, and merger announcements moved markets.  Things have changed.  New securities, new trading strategies, and advanced technology have combined to change the landscape on Wall Street.

Certainly, fundamental developments still matter.  Economic awareness is essential and understanding the corporate landscape remains critical.  But these factors have a much lower effect on day-to-day activity as new trading vehicles have grown in both size and trading volume.

Reportedly, JP Morgan has estimated that 90% of the market trading is not based on fundamentals.  This trading is partially based on such things as algorithms, fund flows, periodic/systematic investing, and index arbitrage.  An important point is that the financial media’s economic narrative has no influence on these approaches.

There are estimates that 80% to 85% of 401k contributions are invested in target dated mutual funds.    Target date funds are mutual funds or ETF’s that invest in a mix of stocks, bonds, and other securities.  The fund periodically rebalances and shifts the portfolio from aggressive to conservative investments over time.  At the target date of the fund, the investments should be in a money market or other similar positions.

Looking under the hood at these funds, it’s crucial to understand that contributions to target funds are immediately invested.  There is no judgement on whether it’s a good time to invest.  There is no analysis if an investment is an overvalued security.  The money is put to work as soon as it is received by the fund.

Target dated investments are not the only funds that act this way.  Index funds do the same thing.  As soon as an S&P 500 index fund receives money, it buys shares in Apple, Microsoft, Amazon, Nvidia, etc.  Combining index and target dated funds, there is a sizable and steady flow of money into the market, and it is invested automatically regardless the economic backdrop.

Beyond these systematic investing programs, derivative trading, and dealer flows have grown in stock market trading.  These have been more in focus since the addition of daily options on the SPY and QQQ ETFs in 2022.  These options have exploded in usage in 2023.

Again, these strategies are very short term and have little to do with economic fundamentals.  0 DTE options (the daily options or zero days to expiration options) have partially replaced use of S&P futures as a trading tool.  These options cost a lot less and can provide the same level of exposure for a portfolio.

The mechanics of these trades result in the options dealers with unwanted risk which they hedge through buying and selling the market.  This is a complex strategy that looks at both the option price and the SPY.  These are non-linear relationships which require many constantly changing mathematical calculations to measure the rapidly shifting landscape.     Despite these intricacies, it has not prevented 0 DTE trading from being a force in the stock market throughout 2023.

The main conclusion is that these strategies are a large piece of the capital markets and have very limited connection with economic data.  A recent example of how the day’s trading can be separated from the news flow was last Friday (October 6, 2023).

The Department of Labor released September’s employment data and the report was stronger than forecast and the stock market fell.  Any sign of an expanding economy (such as a healthy job market) is a negative because it will likely force the Fed to keep interest rates higher for longer.

Last Friday, the morning retreat reversed by midday and stocks rallied the rest of the afternoon.  There were no headlines behind the market’s direction change but short dated call option buying played a significant role.  The financial media were forced to change the narrative from ‘too strong of a report’ to ‘moderate wage pressures’ which equals everything is fine.

For those who were too busy to follow Friday’s market and were only able to check the closing prices, it was another good day in the stock market.  These types of rallies on seemingly bad news have been happening all year.  And there have been plenty of selloffs on good news as well.

The biggest danger within this environment is that risk becomes camouflaged and mispriced.  When markets rise, it’s easy and natural to conclude that it’s a sign of a good economy.  But what if the rally is not a reflection of any fundamental data?  This is what an algorithm or dealer flow can do.

Wall Street is continually looking for an edge to make money and developing new trading strategies to accomplish this.  0 DTE option trading and the related algorithms is the latest chapter in the story.  And as these new products are implemented it can breakdown established correlations especially in short term durations.  Over the long term, the economic data and fundamentals will direct the capital markets.  In the meantime, the adjustment period could be volatile.

It’s Greek to Me

Copy of the 2nd Quarter Review Letter



45 Lewis Street, Lackawanna RR Station

Binghamton, NY  13901

Phone: 607-231-6330                                              email: [email protected]


The following is a copy of the 2023 2nd quarter letter sent to clients. It reviews the markets and the client account’s activity and performance for the 2nd quarter of 2023.


August 16, 2023

The financial markets are constantly changing.  This happens through adopting innovative technologies as well as offering new and different securities to trade.  For example, the New York Stock Exchange had thousands of floor traders at the Big Board in the 1990’s.  They conducted trades, provided liquidity, and managed bid-offer spreads.  Today, there are a couple hundred traders on the floor as most trading is done electronically.

Once upon a time, mutual funds were groundbreaking and, as the industry grew, it became a big part of the Wall Street landscape.  As the public learned about them, the money flowed in and everyone rushed to open a mutual fund.  Then mutual funds morphed into other products such as exchange traded funds.  ETF’s have exploded in popularity with offerings that match sectors, industries, counties, and strategies.

This evolution is continuing, and the latest version is stock “baskets” that Goldman Sachs is allowing institutions to trade.  These are “unique vehicles to track and trade thematic baskets” (Goldman Sachs website).  They have 38 thematic baskets and 10 sector baskets.  Here are some of the offerings –

·        “Interest Rate Sensitive”

·        “High Hedge Fund Concentration”

·        “Low Hedge Fund Concentration”

·        “Mutual Fund Overweight Positions

·        “Mutual Fund Underweight Positions”.

Besides the Goldman Sachs baskets, Wall Street has another creative security that is related to another widely traded one.  In 2022, the markets began trading stock index options on the S&P 500 and Nasdaq 100 that expire every day.  These became known as “0 DTE” or 0 days to expiration options.  Regardless of the lack of history, 0 DTE’s are playing a very big role in daily and short-term trading.

Institutional investors have dominated the 0 DTE market.  They discovered that they could gain market exposure (long call options) or hedge risk (long put options) quickly and at a much cheaper cost as compared to buying futures or individual stocks.  And as they got experienced with this market, traders increased their sizing of 0 DTE positions.

Another key part of this strategy is the option dealer’s role.  When the dealer sells the institution a call options on the S&P 500, they have risk to a rising market.  They hedge this risk through buying the S&P 500 futures or the stocks that make up the index.  Naturally, these dealer purchases give the stock market a tailwind and prices can climb.

Due to the short timeline of the 0 DTE strategy, the motivation behind the trades may have little to do with the economic and fundamental backdrop.  Dealer positioning appears to have a role in these trades which then influences the overall market direction.  As the market rises, dealers need to hedge further which drives prices higher.  This potentially becomes circular as higher prices force dealers into more buying.

This appears to be happening in 2023.  The stock markets have been resilient despite many economic difficulties.  Inflation, although lower than 2022, remains a problem.  The Federal Reserve is still raising interest rates.  Corporate earnings are declining.  Banks have failed and the system is stressed.  Despite this, the U.S. stock market has had a good year.  Here are the major averages performance in the 2nd quarter and year-to-date.



In addition to the growth of 0 DTE trading, 2023’s stock market has had very narrow leadership.  Seven stocks (Amazon, Apple, Google, Meta/Facebook, Microsoft, Nvidia, and Tesla) represent the vast amount of the year’s performance.  These seven stocks are up 58% in the first half of 2023 and, if they are removed from the S&P 500, the index would be up 4% instead of 15%.  Please see the chart below from the Kobeissi Letter.



As this narrow leadership and new option trading have dominated the markets, it introduces additional risks.  The seven stocks that are leading the rally trade at expensive valuations.  If there is an earnings hiccup in any of these, it could lead to a rush to liquidate these positions.

While change and innovation are a constant in the capital markets, they don’t always reduce risk.  I believe that a cautious and defensive approach remains the best strategy as we work through the second half of 2023.  I will look for opportunities as the various crosscurrents work through the economy and the markets.

Please contact me with questions or comments.  As always, thank you for your support and confidence in Kerr Financial Group.

A Look at the Labor Market


he job market and employment data are closely watched by the capital markets. There are many dynamics in the statistics but such things as the unemployment rate, level and trend of wages, and the labor participation rate get a lot of Wall Street’s attention.

The labor market is impacted by many things including monetary policy and the economic cycle. Additionally, recent cultural and technological changes have altered the employee-employer relationship, where people work, and the type of jobs demanded.

 Here is a labor industry review which touches on some of these key issues.

Workforce Trends

  • Remote work: According to estimates for 2023, 12.7% of full-time employees work from home, while 28.2% work in a hybrid model. Further, by 2025, it’s expected that 32.6 million Americans will work remotely, or roughly 22% of the workforce.
  • Workforce well-being: The pandemic highlighted the importance of prioritizing employee well-being and mental health. According to a 2023 Employee Wellness Industry Trends Report from Wellable Labs, employers are likely to focus their investments on the following benefits:
  • Mental health (91%)
  • Stress management and resilience (77%)
  • Mindfulness and meditation (74%)
  • Financial wellness (65%)
  • Telemedicine (65%)

It’s important to note that employers in 2023 are moving away from in-person wellness benefits, such as onsite seminars and provider meetings, toward more affordable, convenient, and scalable virtual options for employers and employees.

Labor Market Challenges

  • Talent shortages: Many industries are still battling talent shortages, making recruitment and retention more competitive. The most affected sectors in May 2023 include the financial activities and professional and business services sectors, with 55% of businesses in those markets needing help finding qualified candidates for key positions.
  • Wage pressure: Increasing competition for talent is putting upward pressure on wages, requiring businesses to review their compensation strategies to remain competitive. From May 2022 to May 2023, average hourly earnings increased 1.3%, seasonally adjusted.

Regulatory Environment

  • Legislative changesRecent and upcoming legislative changes may impact your business, including a ban on noncompete clauses, pay equity legislation, human capital rules, and laws determining whether a worker is an independent contractor.
  • Diversity, equity, and inclusion: Organizations are emphasizing diverse, equitable, and inclusive initiatives in the workplace—and employees are on board. Fifty-six percent of workers say focusing on increasing inclusion at work is a good thing.

Emerging Technologies

  • HR technology: The adoption of HR technology solutions is on the rise, streamlining processes such as payroll management, employee onboarding, and performance evaluations. Fifty-eight percent of businesses have implemented HR technology systems to improve efficiency, enhance employee experience, and boost retention.
  • Artificial intelligence: Businesses are exploring AI in areas such as talent acquisition, workforce planning, and employee engagement. In fact, 25% of businesses are integrating AI into their operations, and 91.5% are investing in the development of AI. Further, 70% of employees are using ChatGPT and other AI tools without the employer’s knowledge, so even if you aren’t thinking about AI, chances are your employees are.

The employment market is undergoing many changes and hopefully this provides some insight. Please let us know any questions or comments.

Copy of the 1st Quarter Review Letter




45 Lewis Street, Lackawanna RR Station

Binghamton, NY  13901

Phone: 607-231-6330                                              email: [email protected]

 The following is a copy of the 2023 1st quarter letter sent to clients. It reviews the markets and the client account’s activity and performance for the 1st quarter of 2023.

May 24, 2023

Economic and monetary conditions have a big influence on the capital markets.  It is easier for businesses to grow sales and profits when the economy is expanding together with monetary conditions that are not restrictive.  Of course, growing revenues and net income support higher stock prices and a stronger bond market.

2022 was an historic example of a negative backdrop causing market turmoil.  It was an unusual time where both stock and bonds declined together.  There were many headwinds last year, but the main sources of the chaos were extraordinary inflation and aggressive interest rate increases.

In the middle of 2022, the year-over-year inflation rate exceeded 9% which is the highest rate in over 40 years.  Disruptions in the supply chain caused shortages and higher prices across many markets.  Inflation spread throughout the economy and it impacted consumers’ spending.  The higher cost of necessities meant less was left over for discretionary items.

For corporations, higher costs and less revenue reduced corporate profits.  This challenged those companies that were previously profitable and crushed speculative areas that were losing money.

Prior to 2022, interest rates had been declining for a generation.  The Federal Reserve’s shift to a tighter monetary policy was implemented to battle the accelerating inflation.  As was the case with rising prices, corporate managements had limited or no experience facing higher interest rates.  It was a challenging landscape that upset the financial markets.

These market dynamics remained in place to start 2023.  In addition to inflation and the Fed continuing to raise interest rates, the markets had to deal with increasing geopolitical tensions, even wider social division, and bank failures.  It appeared that the news was getting worse.

Despite a deteriorating landscape, the financial markets stabilized throughout the first quarter.  The fixed income market stopped going down and stocks strengthened.  Markets often trade illogically, especially in the short term, but with some further investigation, possible explanations can be found.

The narrative associated with the financial markets’ first quarter touched many parts of 2022’s issues.  From a broad view, the bulls believed that all the bad news had been priced in.  It was assumed that the news flow would not be getting worse, and, if all damage from interest rates and inflation was discounted, the market might be ok.

An extension of this is that, if all the bad news had been discounted, the recession would be shallow, and inflation would be transitory.  And      once inflation is fixed, the Fed can stop raising interest rates, start cutting rates, and a strong recovery will begin.  This is a big part of what drove the markets in the 1st quarter.

In addition to this storyline and as prices started to rally, there was another development that contributed to momentum.  Daily expiring options in the SPY (S&P 500 ETF) and QQQ (Nasdaq 100 ETF) became a big part of the trading activity in the first quarter.

These options are referred to as 0DTE which stands for “0 days to expiration”.  Traders and institutions are the big players in this strategy, and it developed into an influential part of trading in 2023.  While this is an extremely short-term approach, it takes place every day and can have an outsized impact.  Through a relatively small amount of capital, the option buyer can potentially manipulate the markets.  This was not the only reason that stocks traded better but it played a role.

While the major averages were positive for the 1st quarter, the leadership was very select.  Apple and Microsoft accounted for 40% of the S&P 500’s return in the quarter.  Further, seven stocks drove the Nasdaq which was the best performer.

Here are the major indexes’ performance numbers for the 1st quarter.


Within your accounts, there are positions that hedge market risk.  These performed well in 2022 as they helped manage risk.  They were a significant drag in the 1st quarter as stocks rallied.  It was compounded as our bullish positions did not move higher with the indexes.  The narrowness of the rally meant that it was critical to have exposure to the few stocks that drove the move and that was not the case.

It is noteworthy that the economic problems that disrupted the markets in 2022 continue.  The Fed has raised rates further in 2023.  Inflation has fallen from last July’s reading but has remained higher than the Fed’s goal.  Also, new risks have arisen in 2023.  Silicon Valley Bank and two other banks have failed.  This brings added stresses on the economy and financial system.  There are signs that the troubles in the banking system continue.

The economy and markets are facing historic obstacles which present unique risks.  Additionally, there is a lot of uncertainty in how to address these problems which could bring many unintended consequences.  The bottom line is that the systemic turmoil of 2022 could return.  Accordingly, risk management remains important.  At some point opportunities will arise, but the timing is unclear.

Please contact me with questions or comments.  I’m happy to explain what I think is going on within these volatile conditions.  As always, thank you for your support and confidence in Kerr Financial Group.




Jeffrey J. Kerr, CFA


Kerr Financial Group


Traders’ Attention Spans Get Shorter – 0DTE Options

Kerr Financial Group

Kildare Asset Mgt.

Jeffrey J. Kerr, CFA


May 15, 2023 – DJIA = 33,300 – S&P 500 = 4,124 – Nasdaq = 12,284

“Traders’ Attention Spans Get Shorter – 0DTE Options”


There are many days where the financial markets seem to be light-years apart from economic reality.  We have all scratched our heads on days when stocks rally after a terrible news report.  Similarly, an upbeat report hits the wire and there is widespread turmoil across the markets.  While this has been a common occurrence over the years, it has become more common because of new derivative and option trading strategies.

Daily options on the SPY and QQQ ETFs began trading in the second half of 2022 and have quickly grown to have a large role in the stock market.  Before exploring this trading strategy, let’s provide some definitions.  Put and call options can be a little confusing but basically buying a call option is bullish while buying a put option is bearish.

A call option offers the right but not obligation to buy an underlying security at a specific price any time before the call’s expiration.  A put option is the right but not obligation to sell the underlying security at a specific price before the put’s expiration.

Here is a specific example using Apple (symbol = AAPL).  The AAPL options expire every week.  Looking at a call option that expires on June 16 with a strike price (the exercise price) of $180 per share.  This means that the owner of the call option can buy Apple at $180 any time before June 16.

Obviously when Apple’s share price is trading around the current level of $172, the owner of the call will not exercise (buy at $180).  But if Apple trades above $180 before June 16, the call owner can buy AAPL at $180.

Turning to the put side, the buyer of a $165 AAPL put option with the same expiration date (June 16th) provides the right to sell AAPL shares at $165 before Jun 16.  It wouldn’t make sense if Apple is trading in the $170’s, but if AAPL has fallen to the low $160’s, then put holders will gladly sell Apple shares at the higher price ($165).

To complicate the situation further, the price of these options trade and move up and down according to the stock price relative to the exercise price and the amount of time left before expiration.

With this Introduction, we move the focus to the recent development of daily expiring options.  While many large stocks and the major indexes began offering options that expired each week, the SPY and QQQ started trading options in 2022 that expire every day.  The SPY and QQQ are ETFs that mirror the S&P 500 and Nasdaq 100 indexes, and these are the securities on which the daily options trade.

These daily options are referred to as “0DTE” which stands for Zero Days to Expiration.  In other words, these options expire at the end of the current trading day.  The pricing of these options is entirely based on the S&P 500 and Nasdaq 100’s intraday price movements.  Obviously, given the limited shelf life, this is for nimble traders who can react and adjust quickly.

The growth of 0DTE trading has been massive and led to some unexpected market influences.  From a high-level view, when 0DTE options are bought (a bullish strategy), the dealer who sells these options now has added risk.  The dealer had essentially sold short the options which means they are at risk of rising prices (they will lose money if stock rally).

Logically, dealers hedge their risk from the selling of call options by buying the underlying stocks of the index or they buy futures options on the index.  This buying of stocks and futures pushes prices higher which then encourages more 0DTE call buying which forces more stock and futures buying.  This can easily turn into a circular exercise which can move stock prices regardless of the news flow.

There is evidence that this was a big part of the stock market’s trading in the 1st quarter of 2023.  The S&P 500 was up over 7% in the first quarter and the Nasdaq Composite rose almost 17%.  This happened within an environment where banks failed, inflation remained high, the Federal Reserve raised interest rates, and the economic data weakened.

0DTE trading is being used as a short-term trading tactic and has very little correlation to the fundamental economic data.  Traders, who are undoubtedly aware of the problems that are challenging the economy, believe they can rapidly adapt their positions to a changing stock market through this strategy.

The trading of 0DTE options has changed the way the stock markets move in the short term.  To be sure, the circular machinations have helped stock prices in 2023.  However, this can work in reverse if stock prices begin to drop.  It could cause a rapid and steep drop if put option buying starts to outweigh the call buying.  Dealers would have to hedge against declining prices and a dive could accelerate.

This is a complicated subject which can be confusing.  Please feel free to call or email me and I’ll try to answer and explain further.  One of the main conclusions from the growth of 0DTE is that underlying risks get masked in the short term.  Ignoring risks doesn’t mean that they are reduced or eliminated.  In fact, it could result in greater risks as financial asset prices move further away from reality.  This could be the story of 2023.

Wall Street Asks If The Glass Is Half Full


Kerr Financial Group

Kildare Asset Mgt.

Jeffrey J. Kerr, CFA


April 28, 2023 – DJIA = 33,826 – S&P 500 = 4,135 – Nasdaq = 12,142

Wall Street Asks If The Glass Is Half Full


To some the glass is half full and to others it’s half empty.  This quarrel between optimism and pessimism arises throughout our world.  These mindset differences are growing wider and deeper in many areas of our culture.

The financial markets have long been a battleground of opposing opinions.  In fact, Wall Street has assigned each side a mascot – the bull and bear.  And while the fight is never ending, the 2023 episode is exceptional.

This year is unique on countless levels with economics and finance having their share of distinctive issues.  For example, the bulls and bears disagree about the impact and longevity of the Federal Reserve’s policy of raising interest rates.  There is broad optimism that the Fed will stop raising interest rates soon and then pivot to reducing rates and loosening monetary conditions.

The pessimists in the financial community believe the Fed will continue raising rates and then will be patient before any shift.  They point to multiple speeches by Fed leaders and Chairman Powell that emphasize the need to reduce inflation.

Another related and critical topic dividing the bulls and bears is the economy.  The bulls, counting on the tailwinds from a Fed swinging to interest rate cuts, are predicting an economic rebound and growth starting in the second half of 2023.  Additionally, the recent stock market declines, they believe, have priced in all bad news and it’s time to click the “buy” button.

The ursin view is much different.  Inverted yield curves have historically led to recessions.  The record level of the current inversion suggests that the recession will be deep and long. Layoff announcements have become a regular occurrence and their impact has not been fully felt.

We’re in the middle of the 1st quarter earnings reports and the numbers, so far, are troubling.  258 companies within the S&P 500 have released results.  The summation of these reports shows revenue growth of 4.9% year-over-year.  Earnings have fallen 2.6% for this same period.  Looking at the industry sectors, technology reported a 1.2% decline in revenues with a 12.8% drop in profits.  The same data for the Nasdaq 100 index (46 companies reported) is worse.  Sales have increased 4.4% while net income is down 6.9%.

The banking crisis is another glass half full-empty development.  Wall Street bulls are confident that the failures of Silicon Valley Bank and Signature Bank are isolated events and that the Fed and other regulators have addressed the problems.  With the system stabilized, banks will start financing housing and businesses.

The bears contend that the crisis is starting and that it will continue to grow.  The increase in interest rates during the past 12 months has impaired the loans that banks have on their books.  The value of a low interest rate mortgage that was done years ago has plunged given the current level of rates.

This is a large problem for many lenders and their balance sheets have been devastated.  Of course, the Fed has initiated a new program that basically allows a bank to pretend that an underwater asset is worth its original value.  They are lending to all banks based on fabricated numbers.  This might work in the short term, but it doesn’t address the problem of the loss of value.

Opposing viewpoints drive the markets.  A buyer sees value while a seller sees an opportunity for liquidity.  The willingness of each party to transact at an agreed price is what makes markets.  The capital markets of 2023 are facing widely differing views.  Economic developments as well as geo-political and international problems will drive the markets.  Ultimately the views of the bulls and bears will determine the path forward.