Joe Tigay Advisors search for safe harbor as market psychology starts to bend.
The futures are up this morning. First, I am watching for is, will the bond rally continue? Then, what happens to tech if bonds rally. We know Banks will struggle with lower yields. However, tech will tell the story of market psychology. Is bad news now bad news? The market will tell us. If Tech goes up with bonds its an all clear. If tech goes back to the bad news is bad news story then this is a dead cat bounce. When correlations rise, volatility also rises. Correlations rose to their highest point since May yesterday, this is key to monitoring market risks today.
Stocks continued the downward trend from Friday posting at down Friday and Monday. Over that period the VIX moved from a low of 16.03 on Friday to a high of 25.09 on Monday. A significant move, but not surprising to anyone following the SPX skew, the price traders are willing to pay for about relative to an upside call on the market. The selloff began on worries of Corona Virus taking a 4thtour with energy and hospitality hardest hit and that was key to the rise in the VIX as we have not seen those S&P 500 put buyers take off their protection yet.
An outsider might observe the market in 2021 and say that feels like a low vol environment. But behind the scenes there has been significant volatility. Banks have had big moves all year long. Tech has had several up and down swings. And moves in the 2-10 year note spread is swinging back and forth causing investors to quickly shift from banks/value to growth as the spread narrowed.
We are early in the earnings season, and there are a lot of high prices stocks out there, so until we see some numbers it makes sense to pump the breaks and check the heat of this economy.
