As the punditry continues to insist that because the fundamental backdrop is sound, nothing too bad can happen, people seem to have learned nothing (or very little) from the technical selloff that unfolded early in February.
The events that transpired on Monday, February 5, laid bare the risks of modern market structure. The rebalance risk inherent in the structure of levered and inverse VIX ETPs was realized and amid the turmoil, liquidity seemed to be sparse. The concurrent VIX spike (the largest in history), triggered a cascade of de-risking from the same systematic strats that some folks have been warning about for years. By the time that was over, some $200 billion in equity exposure was forcibly unwound.
While the bond selloff exacerbated by the above-consensus AHE print that accompanied the January payrolls report did indeed contribute and while there's certainly an argument to be made that the week prior was actually the critical week in terms of setting the stage for the rout, the events that transpired from February 5 through February 8 were quite clearly technical in nature and as such, underscored the inherent risks of what many believe is an increasingly fragile
Please support this website by adding us to your whitelist in your ad blocker. Ads are what helps us bring you premium content! Thank you!