Ok, so recently, stocks slipped into a correction. In the U.S. In EM. In Hong Kong. In Germany. Etc. For the S&P, the 10% dip off the late January highs snapped a 499-day streak:
(Goldman)
Anybody remember that? Probably not, even though it was last week.
Thanks to what certainly looks like a change in the narrative in terms of how equity investors are interpreting the first convincing signs of rising inflation pressures, stocks have managed to stage a pretty remarkable bounce after a week that saw two separate 1,000+ point declines on the Dow and the largest VIX spike in history.
Again, it seems like maybe you don’t remember that at all based on how you’re trading this week, but who am I to judge?
I mean sure, we just witnessed a preview of what a total meltdown might look like in a world where, to quote Citi, “trades and strategies which explicitly or implicitly rely on the low-vol environment continuing, are becoming more and more ubiquitous.”
And yes, part and parcel of that was a deleveraging by the systematic crowd, suggesting that fears of a CTA and risk parity unwind aren’t completely unfounded despite the valiant efforts of their proponents to suggest otherwise.
And finally, no, we are definitely not out of the woods yet when it comes to whether rising yields are eventually going to murder the bull market (Friday’s bond rally notwithstanding).
All of that would suggest that maybe all the folks piling back into stocks this week might be “going the wrong way” (to quote the couple in the car from Planes, Trains and Automobiles), but as John Candy famously put it, “how do they know where we’re going?”
Well assuming you’re going to bet on history repeating itself (or at least rhyming), and assuming you’re not buying into the notion that BTFD may in fact have died earlier this month without anyone realizing it, you might take comfort in the following fun flow chart out Friday from Goldman which shows how all of the S&P corrections since WWII have played out:
So that’s encouraging. The chances of a recession purely based on the history of S&P corrections since WWII are about 33% and the chances of a bear market (whether within a recession or not) are just 30%. Here’s the full breakdown:
If you try hard enough, I have no doubt you can find plenty of confirmation bias in there to support your penchant for loading up some more headed into the weekend.
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Heisy, for what it’s worth (nothing), I really don’t like these kinds of articles. They are typical sell-side nonsense, betraying significant cognitive dissonance. On the one hand, the sell-side has done a pretty good job chronicling the unprecedented impact that central bank buying has had across global markets. On the other hand, they publish useless work like this, which is totally irrelevant exactly because central bank activity over the past decade is unprecedented. As a result, there is absolutely no reason whatsoever to look back at history for clues on what the future may hold, because history did not have $15 trillion of bank buying. You can’t have both of these be useful concepts, you can only have one or the other be useful (and we know which one is useful, cause you’ve been banging the table on it).
Just my two cents, brah.
Rudy, the first sentence of your comment is the key sentence here. I’d go with that if I were you.
Fine, you’re right, it was a bit long-winded. I get that when frustrated and feel like my time was wasted.
no, I mean same as usual, people are welcome to criticize.
but when it comes to whether Heisenberg is like other popular bloggers in terms of not being prone to responding, “I’m not that guy.”
lol.
Come on H…..this is unprecedented…so clearly the charts are useless and you aren’t allowed to ponder what happens next.
Because systematic develeraging and increased vol from record lows has anything to do with economic recessions?
Jk. Of course it doesn’t.