I hope you are well. My thoughts are with you, as we are all united during this unprecedented time. A big shout-out to my daughter-in-law, Kayla, a Seattle nurse, who stepped onto the front-lines of the pandemic, testing patients for the virus. I trust we all will have similar stories of heroism from assisting the elderly to aiding shut-in neighbors. We will get through this.
Our firm is open, and we are ensuring we meet the needs of our clients. Our technology, despite the incredible volumes, and tick and quote messages, handled last week perfectly. While we have a skeleton crew at our office in NYC, our staff is fully enabled and capable, as part of our BCP protocol, to work effectively remotely -- reach out if you need us.
The S&P 500 Index as of last Friday is down 32% from its 52 week high of 3393. As I type this, futures are once again lock-limit down for another 5% loss. It is reasonable to prepare for a 50% retracement from the high to 1697, given the drastic shutdown of our economy. The median market drawdown once at Friday's percentage loss is 36% and the median time until the low is ten weeks, with a median recovery time of nearly four years. I hope I am wrong.
Let's use our tools to plan for this week and draw on market-generated information.
For the week, the S&P 500 Option Implied Move is + / - 228 points or 90% implied volatility with a range of 2533 to 2076. Since the market has violated the expected move for nine out of the past ten weeks, will it close within the expected move this week? Interestingly, implied correlation on the shortest resolution is easing from extremes suggesting rotation. Next week is month- and quarter-end, and the likelihood of tactical allocation into equities from bonds will provide a vital floor to markets should funds begin positioning this week.
The daily, weekly, and monthly trends are, of course, down.
The news flow coming out of Washington takes precedence to Economic Releases and Earnings Releases.
VIX closed at 66.04, and VVIX (volatility of VIX) closed at 187.18, and the volatility curve is still in extreme backwardation (risk higher now than in the future). The only true hedge remains cash or VIX relative to the S&P 500 Index. The VIX curve has steepened, and the shape has shifted.
High Yield Option-Adjusted Spread is at levels not seen since prior recessions, pointing to stress in high yield and serves as one of many data points for the Fed's double-digit interventions last week.
Updated Index Levels.
Take care, and we are here to serve you.