Selling risk intensifies, market outlook should remain cautious
And the current environment is one in which the cap-weighted SPX has outperformed the equal-weighted index, which means that average equity investors have performed much worse than the index itself. In fact, many popular momentum and volatility strategies have performed worse this year. Not as good as the SPX, which also shows what a frustrating year it has been for most active managers.
The current SPX decline has pushed the market into negative gamma territory following the massive options expiration in mid-September, and volatility control funds appear vulnerable to being forced to sell after nearly a full year of substantial accumulation of exposure. ; In addition, from a valuation perspective, the rise in real interest rates has widened the gap with the SPX forward price-earnings ratio to the widest level this year. For risk assets, we still maintain our cautious (negative) view since late summer .