Bond market volatility is spiking:
The ICE BofA MOVE Index hit 123.8 points last week, the highest level since January. The MOVE index, also called the “VIX of bonds” is a metric measuring yield volatility of 2-year, 5-year, 10-year, and 30-year Treasuries. The index has skyrocketed 38% in just 3 weeks as yields started rising following the Fed's decision to cut rates by 50 bps. Over this period, the 10-year Treasury yield jumped from 3.64% to 4.10%. At the same time, the popular bond-tracking ETF, $TLT, fell by 6.8%. What happened to the "Fed pivot?" Source: The Kobeissi Letter, The Daily Shot
⁉️IS THE VOLATILITY INDEX VIX SET TO SPIKE FURTHER⁉️
VIX spiking bets (via call options) soared to one of the highest levels of 2024, according to the WSJ analysis. Call options betting the VIX index will skyrocket to 45 points by October 16 HAVE TRIPLED in a matter of days. Source: Global Markets Investor, WSJ
Why the VIX is acting bananas: look at the events that are now in its 30 day window
Source: BofA, zerohedge
‼️MARKETS JUST ENTERED THE MOST VOLATILE PERIOD OF THE YEAR‼️
In October, equity markets volatility is ~34% above average for the other 11 months of the year. October is also the worst period for the S&P 500 during election years as uncertainty spikes... Sourcre: Bloomberg, Global Markets Investor
Is buying the dip still the best strategy? The average return when buying the dip in the S&P 500 varies based on timeframe.
Within 6 months of buying a -10% decline, the average return has been +13% compared to a +4% return when holding stocks through the pullback and recovery. Within 12 months, the "buy the dip" strategy has returned a +22% gain, beating a +5% return with the buy and hold strategy. On the other hand, buying dips over a 5-year period has returned +33%, well below a +75% from simply holding. In other words, buying the dip has been a successful strategy during periods of market volatility.
An important chart by J-C Parets >>> High Beta outperforming Low Volatility stocks is usually something we see in healthy market environments.
This year, however, High Beta has been struggling to make any progress vs their Low Volatility counterparts. "Beta" is essentially how volatile a stock is relative to its benchmark. So High Beta think $SMCI, $NVDA, $AMD, etc.. You have half the S&P500 High Beta Index in Technology and another 17% in Consumer Discretionary. In contrast, for Low Volatility think Berkshire Hathaway, Coca-Cola, Visa, Procter & Gamble. You'll find a lot of Financials, Consumer Staples, Utilities and Industrials in this group. Source: J-C Parets
Is the VIX preparing for another pop?
$VIX During an election year, it is the norm for volatility to pick up in September. Source: Trend Spider
Crude Oil falls to lowest price since January
Source: Barchart
