It’s not the intensity of the drop that’s weighing on sentiment, but rather the fact that big down days are getting more frequent and there’s been a scarcity of large rebounds. Three of the six days when the S&P 500 lost more than 1% last quarter occurred since mid-September. And there were only two days when the index gained more than 1% in the quarter. That down-to-up ratio of three is the highest since 1994, data compiled by Bloomberg show.
“We just have a lot of questions that are on people’s minds,” said Brian Donlin, an equity derivatives strategist at Stifel Nicolaus & Co. “You’ve seen a bit more hedging, a bit more risk of a real vol spike.” Count IUR Capital’s Gareth Ryan among those riding the wave of volatility. A day after the Fed reiterated its higher-for-longer stance, the firm’s managing director bought a put spread on the SPDR S&P 500 ETF Trust, wagering that stocks would fall and volatility rise. He trimmed some of that wager when the S&P bounced on Thursday. The VIX Index is at 17.52, above its close of 14.11 the evening before the rate-decision day.
Still, the latter part of September didn’t look good for equity bulls. Rising rate anxiety has likely weighed on sentiment. Also, share buybacks have been frozen for about 90% of S&P 500 firms amid a pre-earnings blackout, stripping the stock market of a big upward influence.
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