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Run Forrest, Run! Investors Flee Risk Assets This Week as VIX spikes over 60%

May 08, 2019

Better Data for Better Investment DecisionsBetter Data for Better Investment Decisions
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  • Since the dawn of 2019, investors' risk appetite has grown greater and greater
  • Risk assets rose across the board as 2019 marched on with improving economic news and positive news flow from US-China trade talks 
  • It was assumed a US-China trade deal was basically done and it was just a questions of signing the papers and waiting for the market to rally further
  • China was due to visit the US this week, the deal woudl get done and champagne would flow
  • The VIX fell from above 23 at the start of the year to trading with a 12 handle last week anticipating exactly this scenario

 

VIX Volatility Index Year to Date

VIX year to date

Source: Bloomberg

 

  • But then a finger changed it all

 

  • President Trump used his finger to hit "send" on Twitter, unleashing a barrage of tweets threatening higher tariffs on China if a deal isn't reached soon
  • Investors awoke Monday and seemed to head right for the SELL button, selling risk assets across the board.  Run Forrest, Run indeed!
  • The VIX started its spike, climbing 60% over 2 days, surpassing 20; for comparison the VIX touched 33 on Christmas Eve in the last big risk-off move
  • The VVIX, the measure of volatility of the VIX, has spiked much more, suring from around 86 to over 110; touching the same level it reached on around Christmas Eve
  • The US and China have both indicated they want to close a trade deal; investors are so convinced, at least no yet

 

CBOE VVIX Index, 1 Year 

VVIX index

Source: Bloomberg

 

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