Talking Points:
• A recent rebound in higher risk, higher return assets is drawing more from speculators than committed investors
• The correlation between 'risk' benchmark S&P 500 and the 'fear' gauge VIX is close to the extreme -1.0
• Without fundamental commitment, technical boundaries will carry more weight against market moves
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The recent rebound in 'risk trends' have been relatively uniform, stretching from equities to Emerging Markets to carry. However, participation has been heavily skewed towards the speculative ranks. Traders versus investors focus more on short-term market discrepancies than long-term value investments. That creates a significant imbalance in motivations where duration is meaningfully shorter, conviction never truly solidifies and technicals present more robust barriers. We can see some of the limitations to this disposition in the relationship between the S&P 500 and VIX which shaped the market's profile these past years. Where the volatility index reflects the 'risk premium' in the market, we should note there is little excess left before we reach the recent natural low for haven costs. And, without a new wave of conviction and catalyst to drive sentiment; resistance on sentiment benchmarks like equity indexes are more likely turn the markets back into its range. We discuss risk trends, market participants and the market's bearings in today's Strategy Video.
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