Maybe people should pick another month to go away.
Again it’s August and markets are teetering, this time as President Donald Trump threatens war on North Korea. No more sleepy VIX, no more tiny swings in stocks and junk bonds, goodbye to $500 billion from global equities.
Tom di Galoma said he’d be at work this weekend except he’s flying to Argentina, leaving others to staff desks if needed at Seaport Global Holdings, where he’s a managing director. At Advisors Asset Management in Monument, Colorado, Scott Colyer says nobody’s break has been canceled — yet. Asked what the market will be looking at next week, Guy Lebas is succinct.
“Vacation,” says the chief fixed-income strategist at Janney Montgomery Scott in Philadelphia. “We’ll probably take our cue from the geopolitical drama, which is almost impossible to trade from a practical point. But nonetheless it will be a bigger driver at this point.”
You wouldn’t know it from today, but it’s been just about the worst week all year. European stocks fell the most since Trump’s election and U.S. junk bonds had the biggest drop since March. Turbulence surged, pushing the CBOE Volatility Index up 50 percent and above 16 for only the second time in 2017.
“We’re trying not to do any fear-trading,” Colyer said. “I’m not sure people are taking these threats very seriously because North Korea has been making them for years. We have a president who maybe likes to play the playground double-dare game but the underlying pinnings to the market are incredibly strong.”
Why is August so rough? For equities, it’s the worst month for volatility, with the VIX rising an average 12 percent over its 31 days. In 2011, the S&P 500 alternated between gains and losses of at least 4 percent for four days in August, something never seen in 88 years of data. Two years ago the S&P 500 posted its worst six-day drop since 2011.
Ernie Cecilia, the chief investment officer at Bryn Mawr Trust in Pennsylvania, says valuation in the stock market is on the minds of clients as much as war. It’s a dicey time now that earnings season is over, not much fundamental news breaks and the Federal Reserve is unwinding. He’s glued to his screens.
“This is a 24-7 business, we’re all connected. Ask my wife and she’ll say, ‘Oh, you’re working again,”’ Cecilia said. “There’s always a risk of headlines coming into the weekend that won’t be well received by the market and the risk of that is growing. We’re dialed in, but we’re not nervous.”
Even though this week’s volatility pales in comparison to past Augusts, it’s harder than ever to get a break from it these days, says Richard Sichel, senior investment adviser at Philadelphia Trust Co.
“If I could do away with anything it’d be the tweeting,” Sichel said by phone. “We already have a 24-hour news cycle and the middle of the night tweets by the President have exacerbated that. I’m sure all the proper diplomacy is taking place but the tweeting does create higher tension.”
It’s also created a whiff of gallows humor.
“I’d better start building my bunker,” Ian Winer, director of equities at Wedbush Securities Inc. in Los Angeles, said jokingly when asked about his weekend plans. The truth: “I’m going to relax on the beach. We’re not seeing anybody de-risk their portfolios because they’re worried.”
Joe Sowin, head of global equity trading at Highland Capital Management in Dallas, said discussions of geopolitical risk have become more frequent, but the firm hasn’t made any major shift in its portfolios. The uptrend in equities is still intact, and with the VIX where it is, the market looks OK to him.
“There is still no immediate sign of U.S. planning an attack,” Sowin said. “I have a trading system at home that I can log in to. Will I be logging in Sunday evening? Yes. Do I expect large swings in the market Sunday night? No.”
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