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Well It Finally Happened … Now What?

Weekly Commentary, February 9th, 2018

 

Summary 

  • Equity markets had a tough week with both the S&P 500 and EAFE down over 5% (-5.16% and -5.46% respectively). After briefly reaching “correction” territory (-10%) a couple of times this week, equity markets are currently down around 8.8% from their peak and less than 3% on the year. After an up and down Friday, global equities rebounded to finish up for the day.

  • Fixed income markets have held up relatively well during the turbulence which is actually a good sign with high-quality (AGG) bonds -0.41% and high-yield bonds (JNK) -1.63%--both are down less than 2% year to date.

  • Government Shutdown - was avoided today following Congressional passage of a new temporary two-year $400 billion spending bill. In what is being viewed as a compromise between parties, the bill will raise military spending while also raising public spending. The bill also offers disaster relief funds for hurricane-hit areas of the South but did not address immigration issues, which congress must now address in a separate future vote.

  • Volatility and Related Trades – after an all-time low in volatility in 2017 the correction and mean-reversion many were anticipating fully manifested this week with volatility spiking from lows in the teens to over 40 on the CBOE Volatility Index. Many ETF’s betting against volatility saw catastrophic losses of over 90%, which many believe triggered additional selling from machine-based trading strategies which read the related uptick in volatility to liquidate positions, thus exacerbating the sell-off.

 

To read the full commentary, click below!

COMMENTARY

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