The bear market is showing signs of waking up and, for one, it means the days of setting up your trading desk to short volatility and then going to play golf are over. That was the topic of a new report released by Bloomberg this morning, who made note of a couple of signs that indicate that the bull market's best days could be behind it. It also noted that this year, the average down day for the market has been 24 percent bigger than the average green day, the biggest delta since 1948.
With the market casually shedding 400 points yesterday on the unrest in Italy, it was confirmed that 2018‘s market is very different than 2017‘s market. 2017 was the market of "the Target manager making money by shorting volatility" and 2018 is the market of "not knowing which day volatility could creep out of nowhere and slash the market lower by more than 2% in a single session".
As Bloomberg notes, among the confusion, this has caused a sentiment at trading desks around the world. Yesterday's down day would have been a major aberation last year. But this year, it's become the norm:
None of the narratives floating around the market make any sense. Bond yields are too high, and too low. Politics don’t matter, then they do. There’s excessive inflation, or not enough.
But one message the market keeps sending: don’t get comfortable, because around the corner is pain. Stock traders have been chained to their screens in a year when the average down day is 24 percent bigger than the average up one, the biggest gap since 1948.
Bloomberg also makes the case that this year is different. One data point that it cites? The fact that the worst day of the year last year would have already only registered eighth on the list of down days so far this year – and it is only still May:
It played out again Tuesday as investors were treated to a session of price swings that would have ranked with the worst of the preceding two years -- but in 2018 doesn’t crack the top 20. Phrased differently: the biggest decline in the S&P 500 last year, a 1.8 percent drop on May 17, would rank as the eighth largest since January. And it’s only May.
The article continues:
“What you don’t want to do as an investor is become too comfortable: it can be expensive,” said Donald Selkin, New York-based chief market strategist at Newbridge Securities Corp. “The optimism about coordinated global growth was the main mantra of market bulls just a few weeks ago. Where are they now?”
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