The numbers that explain this week's stock market crash

08 Février, 2018, 10:01 | Author: Marc Bacque
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"For the first time in quite a long while I think it is extremely enticing", Metz said.

The return of volatility offers "hard-boiled traders" the opportunity for returns, said Christian Gattiker, chief strategist and head of research at private bank Julius Baer, although less nimble investors should hold back, he added.

The S&P 500 tumbled on Friday and Monday on speculation that U.S. economic strength will encourage the Federal Reserve to boost interest rates at a faster-than-expected pace.

The S&P 500 index recorded its biggest daily drop in over six years on Monday, and the VIX index shot up to its highest level since August 2015, breaking out of a historically low range. The Stoxx Europe 600 and the UK's FTSE 100 declined about 2 percent as well. With regards to high-yield and investment grade, we've noticed that liquid derivatives are moving with higher velocity than the cash market. Indeed, by closing at 17.31, the so-called fear index is confirming market anxiety is now higher than any of last year's market drops.

No one knows for sure what played out on the afternoon of Feb 5 on Wall Street, cautioned Societe Generale SA managing director Ramon Verastegui, but there's reason to believe the sharpness of the retreat in equities was linked to traders' understanding of how the exchange-traded products would behave. These are the sorts of things we don't recommend you buy because they are opaque, expensive, and they blow up when they go wrong. The low-volatility financial market environment that characterized last year has been violently replaced by a high-volatility, tumultuous backdrop so far this year.

The current moves are "a healthy consolidation" after sustained rallies, he said. "Two key takeaways are that 1) risk assets can remain soft in the short term, and 2) realised volatility in months subsequent to sell-off episodes trends higher than usual, even as implied volatility drops off after initial spikes". And it doesn't mean that rising bond yields aren't going to be a problem.

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Get the entire 10-part series on Ray Dalio in PDF. And that smug grin on bulls' faces following such an epic start to 2018 is beginning to turn. Analysts at Goldman Sachs Group Inc, agreed, noting that the volatility complex was effectively long vol after Monday's big move.

Currency markets in particular, have largely remained unaffected by Monday's market moves, with traditional safe havens such as the Japanese yen and Swiss franc benefiting only marginally.

When people are being forced to sell by weird market glitches like this, that's when you get to pick up valuable assets at decent prices. How much of yesterday was program sells that got out of hand, how much of it was the VIX-related stuff and how much of it was maybe more meaningful.

And chances are, it was at the heart of the sell-off...

The "fear index" rose a further 7% to 39.94. Not too many funds are strictly rules-based, he said.

The company's stock was trading down nearly 15% at 10:31 a.m. ET, at $112 a share. The volatility tax transformed what looked like an impressive return into a not-so-impressive 0% compound (or geometric) return. The product will be forever linked with the events of Feb 5 - when many investors learned that a seemingly free lunch can spoil quickly, and ruin some other people's parties too.

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