Are You Panicking Like Everyone Else?
Panic-level selling
We’ve already touched on the persistent negative gaps traders have faced most mornings over the last couple of weeks. It’s worth noting again, because the gaps are now on par with panic-level conditions over the past 35 years.
Other than 2008, future returns were excellent. That’s a bit like saying, “other than my face, I’d be handsome” but excluding the greatest financial crisis in 80 years is not completely out of order.
Fund exodus
The past two weeks have seen large and steady selling in equity mutual funds and ETFs. Over the past four weeks, it has totaled more than $34 billion in outflows. That’s more than 0.1% of fund assets, among the larger outflows in 17 years.
These weeks of pessimism among investors tended to be good for future returns, with the S&P’s average performance well above a random return. The risk/reward was good, but not great after the first couple of months due to several instances during bear markets.
Worst since 2013
Emerging markets have been hit hard in recent weeks, and trade concerns aren’t the only reason. Economic surprises in these countries have been poor, the worst in 6 years.
That can be a contrary sign for some markets but was not so much for emerging market stocks. Emerging market bonds tended to do well in U.S. dollars, partly because those currencies tended to decline (see inside).
The latest Commitments of Traders report was released, covering positions through Tuesday
The 3-Year Min/Max Screen shows only a couple of new extremes from “smart money” hedgers, including a multi-year long position in cotton and short in Eurodollar futures. In other contracts, they slightly reversed some extremes.
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