The Cboe Volatility Index (VIX) spiked to its highest level in nearly half a year on Wednesday, reflecting a trifecta of investor worries: next week’s U.S. elections, a lack of fresh relief measures and a third wave of coronavirus cases around the world.
While the VIX fell back to 38 today, market volatility is alive and well.
Even as U.S. stocks hit record highs in August and September, the VIX remained elevated as investors refused to abandon their hedges ahead of a potentially turbulent fourth quarter that holds a presidential election. The S&P 500 notched multiple new highs during those months, but the VIX never fell below 20—a phenomenon that hasn’t occurred in two decades.
Since putting in its last high on Sept. 2, the S&P 500 sold off almost 9%, while the VIX has doubled to 40. That’s about three or four times what the volatility index trades at during placid times, though it’s still half of what it was in March, when the VIX closed at a record 82.69.
Cboe Volatility Index (VIX)
Explaining The VIX
The VIX measures implied volatility, a figure based on the price of near-term S&P 500 Index options. When stocks gyrate wildly, options contracts—which allow investors to buy or sell at predetermined prices—tend to cost more.
In addition to being a thermometer of investor sentiment, the VIX is used by investors and traders as a tool for hedging and speculation. There are no products that precisely track movements in the VIX itself (spot VIX) because the portfolio of options that the index tracks is constantly changing.
VIX futures and exchange-traded products that track VIX futures—like the aforementioned VXX and UVXY—are the next best thing. They tend to have a pretty tight correlation with spot VIX over short time periods, while that correlation breaks down over longer time periods due to the structure of futures markets, which require the “rolling” of contracts from month to month that eats away at returns.
Strong Hedging Demand
The VIX usually rises when stocks fall, and vice versa. That’s why it has a reputation as Wall Street’s “fear gauge.” But this year, the normal correlation has broken down, as the VIX has stayed high throughout both up and down markets.
The most likely explanation for this phenomenon is the strong demand for hedging by investors who don’t want to be blindsided by an unexpected election outcome or another COVID-related hit to the economy.
This week, all that hedging proved prescient as stocks tumbled the most since March amid rising coronavirus cases worldwide. Concerns that more virus relief measures may not come until next year added to the downbeat mood on Wall Street.
A look at the VIX futures curve suggests that volatility traders think that the peak of uncertainty is right now. The futures curve slopes downward throughout the rest of the year and into next year (a condition known as backwardation), though implied volatility remains stubbornly high for many months into the future.
Other instruments investors use for hedging, like gold and Treasuries, are also elevated, though off their recent highs. Spot gold prices were last trading close to $1,900/oz, down from the record $2,064 seen in August, but still in rarified air. The SPDR Gold Trust (GLD) was last trading with a 23.3% year-to-date return.
At the same time, the 10-year Treasury bond yield was last trading at 0.79%, down from 1.92% at the start of the year. The yield may be near the upper end of its range of the past seven months, but it is still at historical lows.
I found this trading commentary wise for the timing of the “Trump Coronavirus Market Nightmare” and wanted to share this in our Bull & Bear Blog:
In this analysis, I’ll be shedding light using experience:
How President Trump’s Covid-19 Positive news may impactthe market
Similarities and differences in historic cases
Why Trump possibly announced his testing positive so quickly
Trump’s Testing Positive
Trump testing positive for Covid-19, 4 weeks before the presidential elections, is not good news
Especially considering that the current market is momentum-driven, such bad news is good enough to scare new investors from pouring money into the market
We can see a similar case where the president’s medical condition negatively impacted the market
President Eisenhower suffered a heart attack on September 25, 1955.
Before this incident, the stock market was at an unprecedented bullish rally
Immediately after the news was released that he was hospitalized, the market fell by 6%, leading to $14 billion instantly vanishing
Eisenhower recovered, and it was later announced that his condition was not serious
Eventually, the market bounced and continued to rally upwards
President Trump also announced his testing positive for Covid-19 a few hours ago
Just as Eisenhower’s case, the stock market is in an uptrend, with significant bullish momentum
The market is correcting, due to bad news, but not as significant as that of the past
Just as Eisenhower, considering the fact that Trump will be taken care of seriously, it’s most likely that he will recover from the virus
As such, it’s reasonable to expect that the market will continue to rally upwards
However, it’s also important to consider those market situations are not the same as the past
For a more in-depth explanation on what makes today’s market special, check out my previous analysis below:
Why did Trump announce his condition?
This is an important question to ask, as Trump announced his testing positive for COVID via twitter
Trump is arguably the most powerful person in the world. He could have concealed his condition if he really wanted to, and later justify it as “classified information”
What could have been Trump’s intentions behind this?
In the case of the Prime Minister of the UK, Boris Johnson, his support rate was at 48% prior to him testing positive
After he got the virus, there was a sentiment of sympathy among the general public, leading to his support rate skyrocketing to 72%, an all-time high support rate ever since Tony Blair
Given this case and the fact that the presidential elections will be held in 4 weeks, Trump could have been targeting this sympathetic sentiment among the general public
It’s also highly likely that Trump recovers quickly, with the best medical staff from the country treating him
As such, he will be qualified to talk about the issue (as someone who has caught the virus) and suggest that he’s the only one capable of solving the problem.
As past cases demonstrate, problems regarding the President’s medical condition is never good for the market. However, given that the president recovers quickly, this could end up being a massive ‘buy the dip’ opportunity.
The Money Supply Vs. Inflation historical chart below can save your family if you follow its revelation.
The “M2 Money Supply”, also referred to as “M2 Money Stock“, is a measure for the amount of currency in circulation.
M2 includes M1 (physical cash and checkable deposits) as well as “less liquid money”, such as saving bank accounts.
The chart below plots the yearly M2 Growth Rate and the Inflation Rate, which is defined as the yearly change in the Consumer Price Index (CPI).
When inflation is high, prices for goods and services rise, and thus the purchasing power per unit of currency decreases.
Historically, M2 has grown along with the economy (see in the chart below). However, it has also grown along with Federal Debt to GDP in times of war.
In most recent history, M2 growth surpassed 10 percent in recessions, during which an expansionary monetary policy was deployed by the central bank, including large scale asset purchases. According to Bannister and Forward (2002, page 28), Money supply growth and inflation are inexorably linked.
The chart below is that of the M2 Money Supply Vs. Inflation:
The chart above is telling you what is coming very soon.
Inflation is tied to the money supply and every single period of time that the money supply expanded, inflation soon followed with a market crash.
Now, when you look at the current money supply, on the far right, you can clearly see that it has exploded beyond reason just within the last few years. This is leading to a MASSIVE MARKET CRASH followed by RAPID INFLATION.
However, you have time still to prepare. As of today, inflation has not yet started but it will come soon.
Do you know which assets you should own, hedge, or sell immediately?
As the Money Supply Vs. inflation adjustment appears we will tell our members precisely what assets to buy, keep, and sell within the Members Blog.
Market Cap to GDP Ratio is a long-term valuation indicator for stocks. It has become popular in recent years, thanks to Warren Buffett.
Back in 2001 he remarked in a Fortune Magazine interview that “it is probably the best single measure of where valuations stand at any given moment.”
The Wilshire 5000 Index is widely accepted as the definitive benchmark for the U.S. equity market and is intended to measure the total market capitalization of most publicly traded companies headquartered in the United States.
The chart below is that of the Wilshire 5000:
The S&P 500 to GDP Ratio
For comparison purposes, the S&P 500 to GDP ratio is shown below as well. The S&P 500 consists of 500 large US companies. Just like the Market Cap to GDP Ratio and is a capitalization-weighted index.
It captures approximately 80% of the available total market capitalization. For these reasons, it’s a much better measure for ‘market cap’ than the Dow Jones – however, the two charts look very similar.
The charts clearly illustrate that the total US Markets are well above their 2000, 2008 and although we have a bit to go, we are quickly reaching the 1929 bubble. Thus, it is safe to assume we are in Market Cap to GDP bubble territory.
Over the next few weeks, we will show you a few more charts that are a bit concerning. Our Wealth Preserver members are protected just in case the Unthinkable occurs.
The S&P 500 is the most widely cited single gauge of large-cap equities on U.S. stock exchanges. Standard & Poor’s estimates that more than $7.8 trillion is benchmarked to the index, making it one of the most influential figures in the world of finance. To be included, a company must be publicly traded in the United States and report a market capitalization of $5.3 billion or greater.
According to Mike Maloney, the S&P 500 Dividend Yield is the second-best way to measure a market value (after the Price Earnings Ratio).
The dividend yield indicates how much a company pays out in dividends each year relative to its share price. In other words, it measures how much “bang for your buck” you are getting from dividends.
In the absence of any capital gains, the dividend yield is effectively the return on investment for a stock. The lower the dividend yield, the less you get for your investment, and hence the more overvalued a stock.
The historic S&P 500 Dividend Yields were deducted by Robert Shiller and published in his book Irrational Exuberance.
As you can clearly see in the chart, The S&P 500 Dividend Yield Is Screaming and telling you that it is well into bubble territory and will eventually correct. When it does correct or crash, will you be prepared or warned, or will you just go down with the markets?
The S&P500 P/E Ratio shows whether the stock market is overvalued or undervalued. It’s not a matter which Stocks you own in your portfolio because when the P/E Ratio turns EXTREME, VIRTUALLY ALL STOCKS Crash.
The price-earnings ratio is calculated by dividing a company’s stock price by its earnings per share. In other words, the S&P500 P/E ratio shows what the market is willing to pay for a stock based on its current earnings.
Yale professor Robert Shiller, the author of Irrational Exuberance, has reintroduced this adjusted ratio to a wider audience of investors. The P/E Ratio is illustrated below and is extremely simple to understand with a quick view of the chart.
So, is it under or overvalued?
Today the P/E Ratio is sitting at 28 and is in Extreme Bubble Territory and getting higher!
All you have to understand from the chart is that since 1880,
“Every single time the S&P500 P/E Ratio rose above 20, the stock market crashed; Every Single Time!”
Expanding Socialist Authoritarianism is getting far worse by the day and it appears that our Algorithmic Cyclical Models on War & Civil Unrest are simply on target, have started, and are expanding rapidly.
India is becoming confrontational against China and oppressing its own people which appears to be in a secret agenda with the Globalist Socialism Crowd trying to isolate China and force them to surrender their sovereignty to their new world order.
What is really frightening is that the Democrats are taking on the policies advocated by Nazi-style views of Elizabeth Warren. It is one thing to read in history books about how oppressive governments became which led to World War II and to see it unfolding before our eyes.
The Socialists have created such a divide among the people this is doing monumental damage to the population turning brother against brother. In California, a woman threw a hot cup of coffee in the face of a man on the street who was not wearing a mask. This entire issue of masks and social distancing has created a mindset that being even close to anyone is dangerous. Many no longer shake hands.
The Presidential Stock Market Direction will be determined by who enters the White House. The “WHY & HOW” is clear…
The recent MMT implies that a Presidential Stock Market Direction win by Biden will prove to be a complete joke. This would be much WORSE than Jimmy Carter who inspired the collapse of confidence in the dollar and government leading to the 1980 gold high. Capital will flee public assets and shift into private.
One the other hand, the worse of the economic crisis is external to the USA became many countries like Germany depend on selling to consumers outside their own country. The likelihood of a breakup of the EU and their idea of canceling currency and moving to perpetual bonds that would even wipe out pensions in Europe will push capital outside and into the US stock market.
Keep in mind that this is a Monetary Crisis Cycle intermixed with a Sovereign Debt Crisis and this entire coronavirus nonsense has so accelerated the debt crisis that now the politicians fear what will happen if they lift the restrictions on paying rents and mortgages.
The politicians around the world have responded in such an exaggerated manner to this virus that they will NEVER admit a mistake. Thus, they must oppress the people and hence we have entered into rising authoritarianism for the next decade.
Although the US Market will have a Slingshot move will occur no matter the Presidential Stock Market Direction, US retirement shares market will follow Europe, so be prepared. Stay close to your Wealth Preserver and Maximizer Signals to prevent a potential retirement account wipeout as this election will become the most violent in our countries history, and it will continue to escalate through 2032.
Lockdown Tsunami #2 has just begun, and that is really bad news for the U.S. economy.
Lockdown Tsunami #1 resulted in the permanent closing of more than 100,000 U.S. businesses, colossal lines at food banks around the nation, and the loss of tens of millions of jobs. Needless to say, this new wave of lock-downs will make things even worse, and some are speculating that this is precisely what Democrats want.
If the U.S. economy continues to fall apart as we approach the election in November, the thinking is that this will make President Trump look bad and will make it more likely that people will cast votes for Democrats. But there is also the possibility that this could backfire in a huge way for the left. If millions of Americans start to identify the Democrats as “the party of the lock-downs”, that could actually greatly help President Trump in November.
At this point, the battle lines are becoming quite clear. President Trump and other top Republicans are strongly against more lockdowns, but Democratic politicians in many areas of the country are starting to institute them anyway. In fact, we just learned that all schools in Los Angeles, San Diego, Atlanta and Nashville will be closed at the beginning of the new school year…
“Resisting pressure from President Donald Trump, three of the nation’s largest school districts said Monday that they will begin the new school year with all students learning from home. Schools in Los Angeles, San Diego and Atlanta will begin entirely online, officials said Monday. Schools in Nashville plan to do the same, at least through Labor Day.”
Other major cities are expected to follow suit. Of course considering the quality of the education in most of our public schools, most of those kids won’t exactly be missing too much.
Ultimately, closing the schools won’t have too much of an economic impact, but shutting down most of the businesses in our largest state certainly will. On Monday, California Governor Gavin Newsom announced a comprehensive lock-down for 30 California counties which account for “about 80 percent of California’s population”…
“Newsom, a Democrat, announced during a press briefing that all bars across the state must close up shop and that restaurants, wineries, tasting rooms, family entertainment centers, zoos, museums and card rooms must suspend indoor activities.The governor also announced that all gyms, places of worship, malls, personal care services, barbershops, salons, and non-critical offices in counties on the state’s “monitoring list” had to shut down under the new order. The order affects more than 30 counties which are home to about 80 percent of California’s population.”
Newsom is a political opportunist, and I guarantee you that he wouldn’t be doing this unless he truly believed that it would help Democrats in November.
But I think that Newsom and other top Democrats have greatly underestimated how much the American people detest COVID-19 restrictions at this point. We have been witnessing a huge backlash all over the country, and even though California is far more liberal than most other states, a backlash has been brewing there as well.
If the Democrats are not very careful, they are going to lose an election that they could have very easily won.
First of all, they should have never nominated Joe Biden. It is obvious to everyone that he is physically and mentally declining at a very rapid pace, and videos of him “acting creepy” will be viewed millions upon millions of times over the coming months. Democrats have known about Biden’s creepy behavior for many years, but they decided to give the nomination to him anyway.
Secondly, most top Democrats have refused to strongly denounce the rioting, looting and violence that have happened around the nation, and this is going to push a whole lot of people toward the Republicans.
Thirdly, the backlash against these new lockdowns is going to be directed primarily toward Democrats. If Democratic politicians push too far, this will be an issue that deeply hurts them in November.
But despite all of these mistakes, it is possible that the Democrats could still come out on top, because Trump and the Republicans are making lots of political mistakes as well.
If Trump wants to make a comeback in the polls, he really needs to fully embrace an anti-lock-down message, because that would strongly resonate with tens of millions of voters.
The first wave of lockdowns certainly didn’t stop the spread of the virus, and more lockdowns will not stop it from spreading either. And now three separate scientific studies have shown that COVID-19 antibodies disappear very, very rapidly, and that means that a vaccine is not going to end this crisis and we will never reach a point of “herd immunity”. So we are going to have to find a way to function effectively as this virus circulates around the globe year after year, because it isn’t going to go away.
We simply cannot shut down the economy every time the number of cases starts to surge again. The damage that we have already done to the U.S. economy has been incalculable, and now these new lockdowns will do even more damage.
“Let me be blunt, too many countries are headed in the wrong direction, the virus remains public enemy number one,” WHO Director General Tedros Adhanom Ghebreyesus told a virtual briefing from the U.N. agency’s headquarters in Geneva. “If basics are not followed, the only way this pandemic is going to go – it is going to get worse and worse and worse.”
What would the WHO have us do?
Would they like us to all lock ourselves in our homes indefinitely?
The WHO keeps touting a future vaccine, but if COVID-19 antibodies disappear after just a few months, there is no way that a vaccine is going to end this pandemic.
And many Americans will never, ever take any COVID-19 vaccine under any circumstances.
As I discussed in an article that I posted earlier, it looks like we are just going to have to accept the fact that COVID-19 is going to be around year after year.
It is easy for the “experts” to tell us that everyone should just stay home, but the price tag for the first wave of lockdowns was astronomical. Thanks to all of the emergency measures that Congress passed, the U.S. government ran a budget deficit of 864 billion dollars in the month of June…
The US budget deficit surged to a record-breaking $864 billion in June, the Treasury Department said on Monday. The increase is the product of the federal government’s efforts to combat the corona-virus pandemic and its economic fallout. The government collected about $240 billion in tax revenue in June, the Treasury said, and federal spending overall reached $1.1 trillion.
To put that in perspective, it took from the founding of our nation until 1980 for the U.S. government to accumulate a total of 864 billion dollars of debt.
And now we have added that much to the national debt in just one month.
We simply cannot keep doing this.
No matter what we do, COVID-19 is going to keep spreading, and we are going to have to learn how to deal with this virus for a very long time to come.
Lockdown Tsunami #2 is definitely not the answer, but unfortunately many of our politicians are convinced otherwise. So U.S. economic conditions will continue to deteriorate, and the economic depression that began earlier this year will continue through the end of 2020 and beyond. We encourage wealth and retirement account protection immediately because when the economy turns down, your retirement account will get wiped out but you family can be safe from collapse.
A possible change in near-term trend is likely as we approach this month in S&P 500 established back during March. Normally, this implies that the next turning point should be a reaction high. Technical resistance stands at 3393.76 and it will require a closing above this level to signal a breakout of the upside is going to unfold. Our technical support lies at 2271.03 which is still holding at this time. which is still holding at this time,” stated Livio S Nespoli of InterAnalyst.us.
Some caution is necessary since the last high 3393.52 was important given we did obtain three sell signals from that event established during February. Nonetheless, this market is trading below that high by more than 5 percent. Critical support still underlies this market at 2532.68 and a break of that level on a monthly closing basis would warn a further significant decline ahead becomes possible.
The market has consolidated for the past 2 Months and only 3393.54 would suggest a reversal in the immediate trend. The previous low of 219186 made during March only a break of 244749 on a Monthly closing basis would warn of a technical near-term change in trend.
With recent spikes in coronavirus cases and fluctuations in the economic data, the market seems to be stuck in a range amid elevated volatility and how the V became a W.
“For now, volatility and choppy markets remain our base case as an uneven economic recovery likely unfolds, the stock market was suggesting a V-shaped recovery, but the more likely scenario is rolling Ws with a sideways to downward bias.” Liz Ann Sonders, chief investment strategist at Charles Schwab, said in a note.
The central bank unleashed another weapon in its arsenal this week, saying it will start buying individual corporate bonds. As comforting as it is to have the Fed’s support, the central bank can only do so much to ease investor fears.
“The Fed can’t prevent the volatility we’re seeing in stocks, and tt will likely take years for the economy to fully recover and there remain other uncertainties on the path ahead. As such, investors may continue to struggle with this mismatch between markets and the economy before seeing the case for new highs.”
Fed Chairman Jerome Powell reminded investors again in his semiannual testimony before Congress that “significant uncertainty remains about the timing and strength of the recovery.”
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