February 5 update: Very easy money for those short (>10x for me personally) the market. S&P -4% from all-time high two weeks ago. Don't believe know-nothing talking heads; we're headed for -10% drop sometime soon. Much more pain ahead for those holding stocks and other assets.
Just some quick notes on finally-arrived recent market sell-off, which has simultaneously unwound in virtually all asset classes around the globe. Please share with anyone you think might be over-levered on financial risk. We anticipated this in July 2017 in a posting shared by The Wall Street Journal, and later that autumn in Jeff Sommer's article in the Sunday New York Times print where we noted this was a once-in-a-generation opportunity. Now see image below for painful returns in just past week.
A current social media poll shows investors still don't understand that the insanity is OVER. Was over for weeks already, and riding on fumes. That the risky asset selling isn't simply going to end this Monday with a bear market drop years later.
Until then, let's take stock of the "risk less" streaks that were suddenly blown-out. We had 15 months without a single-day 2% drop in the S&P, and 14 months without a 3% drop down from the then-all-time high. Both of these streaks that started pre-election were blown out. A few others will likely get blown out soon.
* from Brexit-era: 18 months without a single-day 3% drop or 5% correction from the then-all-time high
* from China-scare era: 23 months without a 10% correction in the market
None of the streaks above should have normally persisted so long- even at this stage of the recovery cycle. Also, we should note that the -2.1% drop Friday in the markets was already worse than the -1.8% worst-day of last year! However we generally see a worst-day that could easily be twice Friday's even (so ≈ -4.2%). As reference the worst day in 2016 was -3.6%, 2015 was -3.9%, etc. Yikes!
So, where to from here? Our best guess is what we admonished about over a week ago (and a continuation of similar themes recently here, here, here):
Just some quick notes on finally-arrived recent market sell-off, which has simultaneously unwound in virtually all asset classes around the globe. Please share with anyone you think might be over-levered on financial risk. We anticipated this in July 2017 in a posting shared by The Wall Street Journal, and later that autumn in Jeff Sommer's article in the Sunday New York Times print where we noted this was a once-in-a-generation opportunity. Now see image below for painful returns in just past week.
A current social media poll shows investors still don't understand that the insanity is OVER. Was over for weeks already, and riding on fumes. That the risky asset selling isn't simply going to end this Monday with a bear market drop years later.
Again, when will our suddenly-hush, President Trump crow about us now crashing through 25,000 (on the downside)?— Statistical Ideas (@salilstatistics) February 3, 2018
Until then, let's take stock of the "risk less" streaks that were suddenly blown-out. We had 15 months without a single-day 2% drop in the S&P, and 14 months without a 3% drop down from the then-all-time high. Both of these streaks that started pre-election were blown out. A few others will likely get blown out soon.
* from Brexit-era: 18 months without a single-day 3% drop or 5% correction from the then-all-time high
* from China-scare era: 23 months without a 10% correction in the market
None of the streaks above should have normally persisted so long- even at this stage of the recovery cycle. Also, we should note that the -2.1% drop Friday in the markets was already worse than the -1.8% worst-day of last year! However we generally see a worst-day that could easily be twice Friday's even (so ≈ -4.2%). As reference the worst day in 2016 was -3.6%, 2015 was -3.9%, etc. Yikes!
So, where to from here? Our best guess is what we admonished about over a week ago (and a continuation of similar themes recently here, here, here):
At some point we'll shift to a higher volatility regime. No one knows when exactly that will be: this year, next year, etc.— Statistical Ideas (@salilstatistics) January 27, 2018
When it BEGINS, it might easily take on the form of multiple 10% corrections in a directionless market, as opposed to a straight-away 20% bear market drop. pic.twitter.com/45RwxPTmAR
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