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The Fed Triggers A Vol Shock
I'm compelled, I suppose, to weigh in quickly on Wednesday's post-Fed stock "crash" and the accompanying vol shock.
I put "crash" in square quotes. A 3% decline on the S&P's a meaningful move, but considering the year it's been -- let's not forget we're tracking for a second consecutive 20% annual gain -- it's hardly a disaster. The Magnificent 7 dropped 4% as a collective.
The impetus was the Fed, and specifically the prospect of "just" two 2025 rates cuts versus the four tipped in the S
Recent past history suggests vol will fall back quickly. But if for some reason it does not, after a week or so we might be treated to some selling from our friends in the fully-loaded up vol-driven models.
Otherwise, it’s back to parsing the nuances in the dot plots.
So, I fail to understand something here (many things, but limiting self to one thing today).
For FOMC to cause a big vol shock, it had to be a big surprise – right? How was it a big surprise that FOMC would deliver “25 then slow/watch and think about 50 more next year”? I don’t think it could have been or was.
Are we in a situation where a little surprise results in a big vol shock? Basically we’re just way too geared up?
is on a bar stool at the kitchen island in the great room of a half-finished house … Sounds just enough uncomfortable to sharpen your mind.
I detect presence of a bond vigilante. if the government does end up having to borrow more or if the economy begins to stall and the government decides to juice it with stimulus, those bond vigilantes could decide to saddle up.
President-elect Elon Musk also blew up the Congressional spending bill. Nothing like threatening a shutdown and ostensibly a US default to chill your risk appetite. Nothing like uncertainty to bid vols.