Volatility has become the name of the game. As Lloyd Blankfein notes, in the same way you believe things are in order something erupts. It turned out always hubris and complacency to imagine that nothing was going to get lucky and the markets as they simply climbed relentlessly higher, seemingly oblivious on the potential “dark clouds” gathering around. But threats of trade wars, rising debt, global geopolitical tensions, chaos and turnover while in the White House, and gathering storms around the U.S. President all eventually do take a toll. The global economy still looks strong with steady, if unspectacular, growth; low unemployment (as a minimum, the officially reported unemployment); relatively strong consumer confidence; tax cuts (while in the U.S.); and continued recovery inside the housing marketall it is contributing to a rather rosy outlook.
But because stock markets topped back in late January 2018, the markets are actually certainly not calmly rising. Instead, the markets are actually punctuated with sharp ups as well as downs. Last week alone saw a 600+ point rise for that Dow Jones Industrials (DJI) followed immediately with a 300+ point decline. The prior week saw the DJI shed over 1,100 points in 2 days. The threat of trade wars, the Facebook (FB/NYSE) debacle, as well as mind-numbing turnover during the White House all brought about volatility and decline. The markets barely mentioned geopolitical tensions with Russia, the circling Mueller investigation, additionally, the growing scandal sheet about the U.S. President’s peccadillos. Many of the volatility makes one choose to the elation covering the tax cuts that helped propel the markets higherignoring, naturally, the growing debt problem as being the tax cuts are estimated so as to add $1.5 trillion towards the U.S. deficit within the next decade. In the process, trillion-dollar budget deficits could soon be de rigueur again.
Our chart below is definitely an inverted volatility index (VIX). Normally, the VIX is shown as moving opposite for the market. As being the stock exchange rises, the VIX falls and or viceversa. The inverted version lines the two of them up nicely, so divergences be noticeable. Note how the February 2016 currency markets low was under the August 2015 low. Although the VIX, rather then making new lows, was getting a higher low. This divergence was really a strong clue the fact that market could rise following that as volatility had fallen.
Despite pullbacks within the S&P 500, even while the market moved higher, the VIX kept rising inside a compilation of rising lows as well. Then from about May 2017 onwards, the S&P 500 started rising sharply, even so the VIX, despite many attempts, couldn’t follow; instead, it produced a selection of only slightly higher highs. It was another significant divergence telling us that inspite of the sharp surge in trading stocks, the VIX’s upward momentum was actually easing.
Given the sharp improvement in the stock exchange resistant to the backdrop of declining volatility, it was actually expected another move generally is a sharp improvement in volatility. Affirmed, the market industry collapsed in late January or early February 2018, and volatility (VIX) fell sharply with the market. Now, volatility has eased all the while the stock market has tested the February 2018 low. As you move the S&P 500 has not made new lows, it made a different low close. The VIX might be diverging here once again with the stock market. Ideas the fact, our expectations are the market could soon rise all over again. But try not to anticipate seeing the VIX make new highs choice . S&P 500 does. Volatility has increased, so we expect it to live this way going forward.
The week which had been
This past week was much quieter in several respects as opposed to previous one. Maybe it’s got something Easter weekend, everyone has calmed down a little bit. The President’s peccadillos stayed firmly in news reports as being the Stormy Daniels “60 minutes” interview drew a large viewing audience. Behind the scenes, legal court maneuverings continued much more case not to mention other outstanding cases of accusations from women resistant to the President could present an even more dangerous situation for him compared to the Mueller investigation. They could drag him into court where he’d must testify under oath. A court has ruled he can’t declare himself exempt from testifying. He along with his Twitter account were strangely quiet concerning Stormy Daniels as well as the other women.
The comings and goings from the White House continue. Veterans Affairs Secretary David Shulkin has gone out, and Trump’s personal physician Rear Admiral Dr. Ronny Jackson is due to. This should actually be interesting as Veterans Affairs is usually an organization with 377,000 employees, building a budget greater than $180 billion. Jackson does not have any experience building a large organization. Jackson must be licensed by the Senate.
Communications director Hope Hicks finally left, and it’s rumored that Trump’s Chief of Staff John Kelly is next. It can be being suggested Trump is often his or her own communications director and Chief of Staff, understanding that could add more confusion and chaos inside the White House.
The west and Russia continued their tit-for-tat expulsion of diplomats over the poisoning of your double agent in Salisbury, England. Many NATO countries additionally, the Not expelled Russian diplomats, and the U.S. closed on the Seattle consulate. Russia retaliated by expelling 160 diplomats on the same countries and closed over the U.S. consulate in St. Petersburg. None in this is definetly having any have an effect on the markets. However it’s an apparent sign of heightened geopolitical tensions, tensions which may ultimately negatively impact markets.
The growing U.S. debt
The U.S. auctioned $294 billion of treasury bills, notes, and bonds today. The split is $185 billion of treasury bills and $109 billion of notes and bonds. By any definition, i thought this was a lot of and above expectations. The importance should be to finance the $1.3 trillion budget as well as the $1.5 trillion tax cut. The quantity could be the largest since financial crisis of 2008. Despite somewhat weak demand, the yield to the 10-year Treasury note actually fell the 2009 week as volatility and weakness while in the stock game translated into strength while in the bond market. On hand market meltdowns, investors seek safer assets which include U.S. Treasury notes and bonds.
U.S. Treasury debt now sits at $21.05 trillion and has now jumped $1.1 trillion since President Trump took office in January 2017. A jump of the magnitude happened only once before: with the height on the 2008