SPX equity breadth has sharply declined, and expectations for future market volatility have intensified☕
The correlated weakening of bonds + equities has led to a terrible performance of common 'risk parity' strategies in September so far, worsening the risk-off tone and leading to significant forced-selling pressures. SPX equity breadth has collapsed materially with just ~40% of stocks trading above it's 200d moving average, with the synchronized weakening in equities, bond prices, credit CDS, and EM FX helping to reiterate the 'cash is king' mantra for 2023. Furthermore, unlike in the crypto space, cross-asset volatilities have started to rise again, with jumps in equity VIX and rate vol being the most obvious as we have rebounded to the pre-summer highs.
Looking ahead, expect price action to be exceptionally choppy as short-term oversold conditions are balanced against a tricky quarter-end and the ongoing UAW strikes and government shutdown shenanigans. October likely won't see much reprieve early on, so we will continue to adopt a cautious/net bearish approach to our own risk management in the meantime.
#bonds #SPX #VIX #governmentshutdown #macro