Ok, so recently, stocks slipped into a correction. In the U.S. In EM. In Hong Kong. In Germany. Etc. For the S&P, the 10% dip off the late January highs snapped a 499-day streak:
(Goldman)
Anybody remember that? Probably not, even though it was last week.
Thanks to what certainly looks like a change in the narrative in terms of how equity investors are interpreting the first convincing signs of rising inflation pressures, stocks have managed to stage a pretty remarkable bounce after a week that saw two separate 1,000+ point declines on the Dow and the largest VIX spike in history.
Again, it seems like maybe you don’t remember that at all based on how you’re trading this week, but who am I to judge?
I mean sure, we just witnessed a preview of what a total meltdown might look like in a world where, to quote Citi, “trades and strategies which explicitly or implicitly rely on the low-vol environment continuing, are becoming more and more ubiquitous.”
And yes, part and parcel of that was a deleveraging by the systematic crowd, suggesting that fears of a CTA and risk parity unwind aren’t completely unfounded despite the valiant efforts of their proponents to suggest otherwise.
And finally, no, we are definitely not out of the woods yet when it comes to whether rising yields are eventually going to murder the bull market (Friday’s bond rally notwithstanding).
All of that would suggest that maybe all the folks piling back into stocks this week might be “going the wrong way” (to quote the couple in the car from Planes, Trains, and Automobiles), but as John Candy famously put it, “how do they know where we’re going?”
Well assuming you’re going to bet on history repeating itself (or at least rhyming), and assuming you’re not buying into the notion that BTFD may, in fact, have died earlier this month without anyone realizing it, you might take comfort in the following fun flow chart out Friday from Goldman which shows how all of the S&P corrections since WWII have played out:
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