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Market Stress Jumps Over Wild Week Ahead

Investors have exhibited no fear despite the S&P 500 Index's first quarterly loss in over a year, while global stocks edge down. Also, high bond yields are now the new market normal, and the dollar sees its best quarter in a year, while Q3 was the worst for emerging market equities in a year.

October 2, 2023

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Even without a US shutdown, market anxiety is rising in anticipation of a wild week. But underlying tension signals are surfacing that extend far beyond the recent US government shutdown that was just avoided.

It's not so much the magnitude of the decline as the frequency with which huge down days occur, coupled with the absence of significant bounces, that's dragging on mood.

Since mid-September, three of the quarter's six days in which the S&P 500 dropped by more than 1% have happened. Furthermore, the index only rose by more than 1% on two separate days throughout the quarter.

This downward-to-upward ratio of three is the highest it has been since 1994.

Stay calm; options traders warn investors anticipating relief.

The volatility index for the S&P 500 for the next week is hanging above the volatility index for the next two months, contrary to the regular trend where risks are thought to increase with time.

Understandably, investors are on edge as the week begins, what with the threat of a US government shutdown that was only avoided. Riskier assets are less appealing since the yield on the 10-year Treasury note is around its highest level in nearly 16 years.

The Federal Reserve's willingness to take drastic measures to reduce inflation is another open topic. The potential of future large price fluctuations is increased because the strike of auto workers is worsening.

Global Stocks Edge Down

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