Displaying items by tag: volatility

(New York)

Markets have been rough for the last few weeks. Investors are doubting the pace of the recovery because of a big renewed rise in cases and the possibility of new lockdowns. And according to market analysts, signs are increasingly pointing to another meltdown. If you study various volatility indexes, starting with the VIX, it is becoming clearer that another big move lower is on the horizon. The VIX and other indexes have recently shot back higher after a steady fall after the huge March volatility and their momentum indicates investors may panic sell and create another big correction.

FINSUM: We do not give much respect to technical analysis on its own, but it is useful (in our opinion) as a tool to quantify what one is seeing in the real world. Right now, this makes sense given the rising worries about new cases and lockdowns.

(New York)

Evercore put out an interesting prediction today. The bank, which has a strong research team, says that the market is likely to be “violent” in the near term. They also added a twist—that it would be “violently flat”, meaning it would have sharps up and downs on but the whole remain around the same levels. Evercore highlights the upsides and risks this way, saying “A significant COVID second wave would continue to drive asset prices lower, but with vaccine development continuing, little correlation between economic re-openings and increased case growth and hospitalization data at the national level”. That said, longer term, they are quite bullish, arguing that there will be a “sharp rebound”.

FINSUM: The news flow is going to mean that stocks are very volatile for the foreseeable future. Increased case growth one day, and then a big jump in retail sales the next.

(New York)

In a recommendation that speaks volumes to clients about the bank’s position on the markets, Citi put out a note to corporate clients this week which instructs them to tap markets for as much funding as they can get right now because the market is totally unrealistic. According to the co-head of investment banking at Citi, “We definitely feel that the markets are way ahead of reality. We really are telling every client to tap the market if they can because we think the pricing now couldn’t get any better”. He continued, “Markets are pricing a V [shaped recovery], everyone’s coming back to work, and this is going to be fine … I don’t think it’s going to be that easy quite frankly”.

FINSUM:A V-shaped recovery is highly unlikely at this point. We think the Nasdaq being where it is isn’t illogical because of how many of its constituents benefit from COVID. But for everyone else, this level of optimism seems disconnected from reality.

(New York)

For the better part of a decade now, major socio-political disruptions never seem to rattle markets. Think back to Occupy Wall Street, the events in Hong Kong over the last year, or the protests in the US over the last week. The question is why? The main reason is that historically speaking—think the entire 1960s and up through the 1992 riots—markets and the economy were never particularly affected by social unrest in the months following big social disruptions/protest.

FINSUM: Essentially the argument here is that there is no precedent for needing to worry about social unrest. That approach only makes sense until protests do cause a big problem.

(New York)

The market is currently in a rough patch. Even with yesterday’s big rally, the near-term prognosis for stocks could be quite bearish. That said, one product that would clearly benefit from a bear market is fixed index annuities. Because they are designed for principal protection (with limited upside), they tend to do very well during down markets, with clients showing ample demand. They are also not overly vulnerable to the Fed cutting rates, so taken altogether, they may be a perfect product for this market.

FINSUM: It seems like a good time for fixed index annuities, and we suspect clients will be showing good demand for the product given widespread anxiety.