Current market commentary
As we had expected, the typical negative summer seasonality for equities struck again. A combination of fears of a recession in the US, a stronger yen and the associated unwinding of carry trades led to a sharp increase in volatility and a broad sell-off of risky assets. This culminated in panic selling of equities last Monday. The VIX reached a level of almost 66 intraday and the Nikkei 225 recorded its biggest daily loss since 1987, at -12.4 %. After we had reduced our allocation to equities to underweight in mid-July, we used the sell-off to counter-cyclically re-weight equities to neutral. The downside risks remain, not least due to geopolitical risks. However, better economic data and a decrease in volatility could also lead to rising markets again. In addition, the central banks could also calm the markets again. After the correction, we therefore consider a balanced positioning to be appropriate.
Short-term outlook
The Q2 reporting season is drawing to a close. Over the past few weeks, 79 % of S&P 500 companies have reported positive EPS surprises and 58 % have reported positive top line surprises. On the political front, the US Democratic National Convention is scheduled for 19-22 August. On the monetary policy front, the focus will be on the release of the Fed's July meeting minutes on 21 August and the Jackson Hole meeting on 22-24 August. Tomorrow sees the release of US producer prices for July and the German ZEW survey for August. Wednesday will see the release of US CPI data (July) and GDP data (Q2) for the Eurozone and Japan. On Thursday, the focus will be on US Retail Sales (July). This is followed on Friday by the preliminary Michigan Consumer Sentiment Index (August) and the UK Retail Sales (July). Next week will bring the preliminary Purchasing Managers' Indices (August) for the US, the Eurozone and Germany (August).
Panic spreads on markets: VIX intraday change at all-time high
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- Last week, the VIX reached 39, its highest level in almost four years. Intraday, it even saw the strongest move on record. The fear barometer jumped by more than 40 points from 23 at its low to almost 66 at its high.
- Even during the global financial crisis, the "Volmageddon" of 2018 or the covid-19 crisis, there was no such volatility shock.
- Often, days of such great panic mark at least temporary lows in the stock markets, thus offering buying opportunities for anti-cyclical investors.