In a record-breaking sprint from all-time highs to an “official” correction, the “short vol” trade unwinding exacerbates an initially fundamentals-driven decline.
Volatility has spiked, jolting investors out of complacency, but that doesn’t mean any dramatic action is needed.
In what was Janet Yellen’s final meeting as Fed Chair, rates were left unchanged, but the outlook for inflation was elevated in the statement.
Stocks have ripped higher to start the year and “melt-up” has become a popular descriptor; but it’s time to judge whether the flame’s too hot.
U.S. stocks may have entered a melt-up phase but for now it is relatively well supported by earnings growth; and although sentiment is extended, behavioral measures indicate still some skepticism. However, given elevated valuations, and the aforementioned overly optimistic sentiment, volatility is likely to increase and more frequent pullbacks are possible. The bull should continue to run, but likely with a bit more drama, so it’s important to stay diversified and disciplined around your long-term asset allocation.
Tax reform—or better put, tax cuts—should provide a boost to the economy, but some enthusiasm-curbing is in order regarding the details and timing.
Perhaps it’s premature (or even a jinx) to mention that if the S&P 500 ends December in the green, it will be the first time in history that U.S. stocks—as measured by that index—were up during every one of the 12 months.
Investors are cautioned not to extrapolate 2017’s performance into 2018, and we expect more frequent bouts of volatility. The global bull market is intact, supported by solid global growth and strong corporate earnings. But with the expectations bar now set quite high heading into next year, pullbacks are increasingly possible. Discipline is important looking ahead.
The U.S. stock market has bucked incessant negative news and now appears to be in melt up mode; meaning discipline is more warranted than ever.
The book is closing on third quarter earnings, which were stellar; but is it time to worry about a bar set too high in 2018?