Volatile Risk-on, Risk-off Market an Investor Headache
$DIA, $SPY, $QQQ, $VXX
The volatile “risk-on, risk-off” is giving headaches to investors who try to beat the market with traditional methods of measuring value, say analysts at multinational bank HSBC Holdings Plc.
Risk-on assets rally when investors are upbeat and fall when the mood turns sour. Risk-off assets do the opposite.
“The tendency of assets to move in lockstep can make life difficult for stock pickers and other investors because it renders long-standing investing strategies less effective and individual stock picks less relevant,” the report says.
HSBC’s index that measures how closely securities move in tandem has jumped to its highest level since Y 2010, reversing a multi-year decline as markets were driven by QE (quantitative easing).
QE is a way for central banks like the US Fed to push down borrowing costs by buying debt securities including Treasuries and mortgage-backed notes. Interest rates fall as bond prices rise.
“Based on the bank’s analysis of correlations, emerging market, Europe and Middle East equities, as well as U.S. equities and high-yield bonds, are considered the most risk-on assets in global markets,” MarketWatch’s Ellie Ismailidou reports. “Government bonds, mainly U.K 10-year gilts, Japanese 10-year government bonds and 10-year Treasurys are the most risk-off.”
This risk-on, risk-off theme differs from the QE-driven environment when bonds and stocks moved together. The market shifted to risk-off at the end of last year as oil collapsed to 13-year lows while bonds and Gold rallied. As Crude Oil recovered some from its February lows, riskier assets like junk bonds and stocks rebounded.
The USD had its worst week since Y 2008 Vs the Japanese Yen after the Bank of Japan (BOJ) unexpectedly decided not to pursue additional monetary stimulus.
Tuesday, the US major stock market indexes all finished lower: DJIA -140.25 at 17750.91, NAS Comp -54.37 at 4763.22, S&P 500 -18.06 at 2063.37
Volume: Trade was above average with about 975-M/shares exchanged hands on the NYSE
- DJIA +1.9% YTD
- S&P 500 +1.0 YTD
- Russell 2000 -1.2% YTD
- NAS Comp -4.9% YTD
| HeffX-LTN Analysis for DIA: | Overall | Short | Intermediate | Long |
| Neutral (0.14) | Neutral (0.01) | Neutral (-0.01) | Bullish (0.42) |
| HeffX-LTN Analysis for SPY: | Overall | Short | Intermediate | Long |
| Neutral (0.15) | Neutral (-0.08) | Neutral (0.05) | Bullish (0.47) |
| HeffX-LTN Analysis for QQQ: | Overall | Short | Intermediate | Long |
| Neutral (-0.05) | Neutral (-0.23) | Neutral (-0.07) | Neutral (0.14) |
| HeffX-LTN Analysis for VXX: | Overall | Short | Intermediate | Long |
| Bearish (-0.37) | Bearish (-0.34) | Bearish (-0.28) | Very Bearish (-0.50) |
Stay tuned…
Paul Ebeling
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