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08Feb2018 Market Update: Wall Street Can't Keep It Up And Extends Losses As Bond Yields Creep Up Again, DOW Tumbles 600 Plus Points As Volatility Continues To Rattle Investors

Written by Gary

US stocks markets have taken another beating today (SPY -2.2%) as a rise in bond yields and higher inflation unnerves investors. The number of unemployment has dropped to its lowest level in nearly 45 years.


Here is the current market situation from CNN Money

North and South American markets are sharply lower today with shares in U.S. off the most. The S&P 500 is down 2.22% while Mexico's IPC is off 1.93% and Brazil's Bovespa is lower by 1.25%.

Traders Corner - Health of the Market

What Is Moving the Markets

Here are the headlines moving the markets.

Wall Street extends losses as bond yields creep up again

(Reuters) - U.S. stocks markets took another beating in early Thursday trade as a rise in bond yields and higher inflation continued to unnerve investors following a historic drop on Monday.

Twitter delivers first profit, shares surge 22 percent

(Reuters) - Twitter Inc shares surged 22 percent at the market open on Thursday after it reported its first quarterly profit and better-than-expected revenue, helped by ads that better targeted users and sales growth outside the United States.

Walmart makes push to sell online goods at $10 and up to capture elusive e-commerce profit

(Reuters) - Walmart Inc is asking vendors to supply it with more merchandise priced at $10 and up, as part of a major push to finally turn a profit at its online business, according to four people with knowledge of the matter.

U.S. senators ask consumer watchdog head for details on Equifax probe

WASHINGTON (Reuters) - A group of 31 U.S. senators said on Thursday they had written to the leadership of the Consumer Financial Protection Bureau (CFPB) demanding information on the consumer watchdog's stalled probe into credit reporting agency Equifax Inc's massive data breach.

U.S. jobless claims drop to near 45-year low

WASHINGTON (Reuters) - The number of Americans filing for unemployment benefits unexpectedly fell last week, dropping to its lowest level in nearly 45 years as the labor market tightened further, bolstering expectations of faster wage growth this year.

Fed likely to continue raising rates: Kaplan

FRANKFURT (Reuters) - The U.S. Federal Reserve is likely to continue removing policy accommodation gradually and could hike rates three times this year, Dallas Fed President Robert S. Kaplan told a business conference in Frankfurt on Thursday.

Trump offshore oil drilling plan draws protest in California

SACRAMENTO, Calif. (Reuters) - Environmental activists in California on Thursday plan to protest a Trump Administration proposal to vastly increase offshore oil drilling in the United States.

Thomson Reuters beats profit forecast, misses on revenue

(Reuters) - Thomson Reuters Corp beat Wall Street profit expectations in the fourth quarter as it kept a lid on costs, but revenue slightly missed forecasts.

Reckitt, GSK balance risk-reward in high-stakes Pfizer fight

LONDON (Reuters) - The leaders of GlaxoSmithKline and Reckitt Benckiser -- two of Britain's best-known but underperforming companies -- are in a high-stakes battle for a dose of Advil to ease their pain.

Dow Drops 500 Points, S&P Breaks Below Key Support As Rate Vol Spikes

US equity markets are tumbling to fresh lows...

As rate vol soars...

The S&P 500 has broken back below its 100DMA...

This Vol Fund Run By A Former SAC Quant Is Crushing It

Amid horror stories of crashing vol-selling funds and entire VIX-linked products getting decimated, like the now infamous XIV, an occasional success story emerges. Take Global Sigma: the fund, which is run by CIO Hanming Rao formerly a stat arb quant, and macro futures and options trader at Millennium and SAC, has a Vol Arb strategy that is absolutely crushing it at a time when most of its vol-selling peers are getting hammered.

The reason: GS Hedge is a systematic long VIX directional trading strategy. Here is its technical description:

The strategy's prediction models are informed by Global Sigma's history as an early trader of the weekly options on the S&P500 futures contract launched by the CME in Q3 2009. The option strategy's risk management framework has been driven by the model's 1-day price distribution prediction forecast of VIX that was first utilized by Global Sigmain 2009.

Some more on the fund's history: Global Sigma began trading managed accounts in late 2009. Global Sigma employs a model-driven, high turn-over approach to trading options.

Global Sigma has become one of the most active managers of the weekly expiry S&P500 options contract in the CTA industry and generally seeks to trade inefficiently priced Puts and Calls. The strategy partially hedges the portfolio's Delta/Gamma exposures in a discretionary manner by taking positions in the S&P500 futures market and by buying under priced Puts and Calls. The average daily Delta exposure of the portfolio since inception has been -0.13, -0.23 since January 2013.

Technicals aside, what the fund does - in simple English - is simple: it is long both the VIX and long S&P futures, or as it states, "Long VIX, beta-hedged with Long S&P 500, i.e. a tail risk hedge."

Approximately 40% of the time a long VIX ...

"This Won't End Well" - Mortgage Rates Spike To 4-Year Highs

Growth? Inflation? Be careful what you wish for, as the surge in Treasury yields has sent mortgage interest rates to their highest in four years, flashing a big red warning light for affordability and home sales in 2018...

The U.S. weekly average 30-year fixed mortgage rate rocketed up 10 basis points to 4.32 percent this week. Following a turbulent Monday, financial markets settled down with the 10-year Treasury yield resuming its upward march. Mortgage rates have followed. The 30-year fixed mortgage rate is up 33 basis points since the start of the year.

Will higher rates break housing market momentum?

As the following chart shows, that surge in rates will have a direct impact on home sales (or prices will be forced to adjust lower) as affordability collapses...

Dow Crashes Over 400 Points, VIX Tops 30 As Risk-Parity Plunges

Dow futures are now almost 600 points from their pre-opening highs as US equity markets stumble hard with soaring VIX and bond yields...

The Dow is collapsing... (after retracing 50% of its plunge)

XIV and The Dow are in perfect sync once again...

VIX is back above 30...

What Tech Giant SoftBank Wants With Boring Old Reinsurer

The idea of a Japanese tech company spending $10 billion on a stake in a reinsurer sounds crazy, but when you think about Softbank's pursuit of Swiss Re, it starts to make frighteningly good sense.

Stocks Changed, but Bonds Still Sound the Same

Trouble for stocks has often been a boon to bonds in recent years. But recent turmoil seems unlikely to have the same outcome. The economic backdrop is simply too bond-unfriendly.

No-Wynn Situation Looks a No-Win for Investors

For the moment, investors seem to be hoping things will soon go back to normal at Wynn Resorts following Steve Wynn's departure as chief executive. But many uncertainties remain.

CryptoWatch: Evidence people haven't got a clue when they invest in bitcoin

Want to know what bitcoin's price is going to do? Ask the dictionary.

Market Extra: Volatity aftershocks? Here's what stock-market investors need to know

The spike in volatility that helped sink stocks earlier this week resulted in a swift and brutal shakeout of what had been termed the world's most crowded trade. But investors wonder whether there still might be aftershocks to come.

Market Snapshot: Dow falls 500 points as volatility dominates trade

U.S. stock benchmarks sink Thursday as Wall Street wrestles with further volatility, with traders contending with concerns about rising inflation and bond yields, against the backdrop of a relatively healthy domestic economy.

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To contact me with questions, comments or constructive criticism is always encouraged and appreciated:

gary@econintersect.com

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