Stock and Bond Traders Eye Another Volatile Open
Funds that are designed to weather shocks, such as trend following and risk parity, got hit. The RPAR Risk Parity ETF, for instance, slipped more almost 4%, its worst return in more than three years.
Worst to Come?
Signs of angst are deepening. The Cboe Volatility Index, a gauge of implied price swings in the S&P 500 known as the VIX, surged toward 30 on Friday, pushing the spot price above its three-month futures in the largest inversion in almost a year.
“The worst is yet to come in the stock market reaction,” said Michael O’Rourke, chief market strategist at JonesTrading. “I would expect more of a risk-off mood until we get some tangible positive news.”
In the credit market, the premium investors demand for owning investment-grade bonds over Treasuries widened to a three-month high. Meanwhile, hedge funds have slashed their net exposure to levels not seen since 2022, according to data compiled by PivotalPath.
Despite the rising worries, some market watchers caution against taking too bearish a stance, given the chance for a de-escalation of hostilities or fresh avenues of diplomacy, with the Trump administration sensitive to market swings.
“You don’t want just sell everything because you think this is going on forever,” said Nicholas Colas, co-founder of DataTrek Research. “This current administration is very sensitive prices and if things get too volatile, then they will adapt.”
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