Odd Lots Lots More on Solving the Mystery of the Big Market Selloff
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Aug 6, 2024 Charlie McElligott, a cross-asset macro strategist at Nomura, dives into the recent tumult in the stock market, including the startling 5% drop in the S&P 500 and the 13% fall of the Nikkei. He discusses various factors driving this volatility, such as the Federal Reserve's missteps, a shaky labor market, and the unwinding of the yen carry trade. Additionally, McElligott sheds light on the implications of short volatility positions and Japan's economic dynamics amidst rapid market changes.
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Skew as Risk Appetite Indicator
- Skew, the demand for downside vs. upside, reveals underlying risk appetite.
- Flat skew signals low downside demand and high upside demand, linked to central bank policy.
Volmageddon: A Multifaceted Selloff
- The recent market selloff is driven by multiple factors, not just one.
- These factors include volatility, AI, Fed policy, and the Yen, collectively termed "Volmageddon."
Volatility as Exposure Toggle
- Volatility acts as the exposure control in modern market structure.
- Low volatility periods facilitate growth in short volatility trades, increasing vulnerability to sudden shifts.