Why Investor Anxiety Propped Up Volatility Last Week
Volatility picked up before the weekend
Volatility in the global markets continued to stick to its recent trend of rising on bad news and drifting back to normal levels in a few sessions. For the week ended September 8, 2017, global volatility rose since investors were anxious about North Korea’s plans for its Formation Day on September 9, 2017. That day, there were no missile tests but only recognitions of their nuclear scientists.
The other uncertainty that impacted the markets last week was Hurricane Irma as it headed for Florida. The United States is dealing with the second hurricane in less than a month, and these storms could most likely have a negative impact on the economy. The rise in US weekly unemployment last week could be a small example of the pain ahead. In a positive development, President Donald Trump struck a deal with the Democrats to extend the debt ceiling deadline by three months and approve aid for Hurricane Harvey.
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US market performance
The S&P 500 index (SPY) fell 0.61% last week, closing at 2,461.43. The tech-heavy NASDAQ (QQQ) closed 1.2% lower, while the Dow Jones Industrial Average index (DOD) fell 0.86% for the week ended September 8. The US dollar (UUP) was sold aggressively as further rate hikes from the Fed were written off. Bond (BND) yields sank lower as a result.
VIX index poised for another fall this week?
The Volatility Index (or VIX) (VXX) rose 19.6% for the week ended September 8, 2017, after falling 10.0% in the previous week. Fear about North Korea’s Formation Day plans sent the index higher at the end of the week. The VIX (UVXY) closed at 12.12 for the week ended September 8 compared to the previous week’s close of 10.13.
According to the latest COT (Commitment of Traders) report released by the CFTC (Commodity Futures Trading Commission), large speculators have increased their overall net short positions to 121,328 contracts from 117,371 contracts through Tuesday, September 5, 2017. Volatility is likely to fall after the markets open this week since there was no major surprise from North Korea over the weekend.
In the remaining parts of this series, we’ll analyze how various asset classes performed last week and look kat the outlook for these asset classes.