All Posts Tagged: CBOE Volatility Index
This weekly report presents insights from our Global Investment Management team.
The recent shakeup in the White House has been at the forefront for investors as stocks swung and volatility jumped back into the markets. The S&P 500 fell 1.54% on Thursday last week as CEOs and staff disbanded from presidential advisory councils over controversial comments made by the President. However, stocks climbed back from earlier lows on Friday after the White House announced Steve Bannon, chief strategist, would be leaving the administration. The decline in stocks marked the fourth highest bout of volatility in 2017, based on the CBOE Volatility Index, and added to the growing concern whether the Trump administration will be able to pass promised pro-growth agenda items like tax reform and infrastructure spending.
Congress remains at an impasse over healthcare as they attempt to repeal the Affordable Care Act amid federal budget deadlines in the coming months. The debt ceiling, which seems to have become an annual issue, will likely be the first item addressed after Congress reconvenes from their August recess. Bloomberg reported that Senate Majority Leader Mitch McConnell assured people at an event on Monday, “There is zero chance – no chance – we won’t raise the debt ceiling.” President Trump seems to be ready for a government shutdown if the newest spending bill does not include funds for the border wall. Lawmakers have their work cut out for them as imbalances shift within the budget: from potential revenue changes via tax adjustments to increases in outlays like defense spending. Defense stocks jumped on a recent speech from the President concerning an increased focus on the war in Afghanistan; the aerospace and defense sub-industry of the S&P 500 has gained 35% since the election, more than twice that of the broad index. Trade will likely be another major factor when reviewing the U.S. government’s finances.
Despite a hard stance from the U.S. going into discussions over the weekend, the first round of NAFTA talks may have been fairly productive. A joint statement by trade officials from the U.S., Canada, and Mexico was issued after talks concluded on Sunday and revealed that representatives are pushing for broad changes under a tight deadline. While the statement did not detail any specifics, it did say that over two dozen topics were covered. Meanwhile, officials on the monetary policy side are getting ready for their annual meeting in Jackson Hole this week. We believe Fed Chair Yellen and her team will use this as an opportunity to start preparing markets for their expected September announcement of “quantitative tightening,” which will start the unwinding of the $4.5 trillion balance sheet.
The Global Investment Management team continues to view stock markets cautiously as risk from monetary and fiscal policy shifts to geopolitical events become more pronounced. Our strategies saw a recent reduction in direct Chinese stock exposure with proceeds invested in large capitalization stocks in international developed countries. The Chinese economy has seen soft trade data both on exports and imports in monetary terms as well as in volume. Tightening policy from the government may also become a headwind for investors. For now, we have captured a portion of the substantial gains this year and have reduced an area that we believe is more prone to volatility. We will be keeping a close eye on the Fed’s unwinding announcement and any progress in Congress.
Investing involves risk, including the possible loss of principal and fluctuation in value. Economic and market forecasts reflect subjective judgments and assumptions, and unexpected events may occur. Therefore, there can be no assurance that developments will transpire as forecasted. The information in this newsletter is for informational purposes only and is not intended to be investment advice or a recommendation. Nothing in this newsletter should be interpreted to state or imply that past results are an indication of future performance.
Fixed income securities are subject to interest rate, inflation, credit and default risk. The bond market is volatile. As interest rates rise, bond prices usually fall, and vice versa. The return of principal is not guaranteed, and prices may decline if an issuer fails to make timely payments or its credit strength weakens.
International securities involve additional risks such as currency fluctuations, differing financial accounting standards, and possible political and economic instability. These risks are greater in emerging markets.
Diversification and asset allocation do not ensure a profit or guarantee against loss.
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