Friday, July 28, 2017

US Stock Market In Completely Different Cycle Than 1987

And if this quant is wrong, today's setup NOT similar to 1987, will anyone remember? Probably not! Although conventional wisdom pairs falling stock prices with an economic contraction, it doesn't always work that way. Confidence is the key. If confidence is shaken, and stocks are viewed as safe haven, conventional wisdom will be turned upside down. This will keep the majority bearish a lot longer than they normally would, because they generally loath acting independently. For instance, how can I be bullish when everyone is bearish?

Headline: A JPMorgan quant may have dropped the whole market with report comparing today's risks to 1987

JPMorgan warned its clients to hedge against a market drop because extremely low volatility often precedes a sell-off.

"It is safe to say that volatility has reached all-time lows, and this should give pause to equity managers," quantitative and derivative strategist Marko Kolanovic wrote in a note clients Thursday. "Low volatility would not be a problem if not for strategies that increase leverage when volatility declines. Many of these strategies (option hedging, Volatility targeting, CTAs, Risk Parity, etc.) share similar features with the dynamic 'portfolio insurance' of 1987."



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