Stock markets remain in a “fog of war” as investors continue to reduce their risk exposure. The S&P 500 has lost 32% since its peak and crossed into bear territory in record time. Investors tend to be frozen by fear after steep market drops, and intense rallies can begin often before they realize it.
The period between Sunday evening and Monday morning are a striking microcosm of the past three weeks. Futures were “limit down” following the failure of Congress to get a deal and rallied in response to the Fed opening the spicket on quantitative easing. In the lack of tangible information, investors continue to trade on emotion.
During times of heightened volatility, investors may feel helpless and, as a result, may be tempted to sell their equity holdings. But timing the market is difficult because an investor needs to be right on the way out as well as on the way in.
In the absence of clarity, investors are flocking to cash. Equity markets are set to open down nearly 10%, continuing the excessive volatility as we are clearly in the “fog of war.”
The disorganized nature of the stock and bond markets devolved into panic, with the major equity benchmarks skidding toward bear market territory and, even more remarkable, interest rates on long-term U.S. Treasury debt falling below 1% for the first time ever. Let's look ahead on where we may be headed.
Oil prices collapsed on Monday in reaction to the Saudis slashing their official crude selling prices for April and announcing plans for supply expansion, reversing previous efforts to support prices as demand fell. WTI crude fell more than 30% at its open before modestly recovering, a loss not seen since the first Gulf War.
