SPX market breadth has declined sharply, and the market outlook is expected to be more volatile☕️
Synchronized weakness in bonds and stocks has made common "risk parity" strategies perform poorly so far this month, exacerbating the risk-off tone and adding pressure for forced selling; SPX market breadth has fallen sharply, with only about 40% of stocks in above the 200-day moving average, while stocks, bonds, CDS and emerging market FX fell in tandem, further emphasizing the "cash is king" theme in 2023; additionally, unlike cryptocurrencies, cross-asset volatility has begun have risen again, with the recovery in equity VIX and interest rate volatility being the most obvious, having rebounded to pre-summer highs.
Looking ahead, with the interplay of factors such as short-term oversold markets, a tricky quarter-end, ongoing UAW strikes and government shutdown risks, price action is expected to be very volatile, and there may not be much relief in early October. We still recommend Take a cautious/bearish approach to risk.
