The Sunday Drive - 08/11/2024 Edition [#123]
The Sunday Drive - 08/11/2024 Edition [#123]
Musings and Meanderings of a Financial Provocateur
👋🏼 Hello friends,
Greetings from Saratoga Springs, NY. Let’s enjoy a leisurely Sunday Drive around the Internet.
🎶 Vibin'
This week’s Vibe is an ode to my kindred spirits who also count themselves as contrarian investors. I hope you enjoy I Wouldn’t Want to be Like You, the 1977 hit from The Alan Parsons Project.
💭 Quote of the Week
“The work of Wall Street often is to introduce people who should not borrow to people who should not lend.“
— Thomas Donlan
📈 Chart of the Week
Okay, can we talk about the volatility event that occurred on Monday August 5th?
As many know, a fairly weak jobs report on Thursday, August 1st set off a round of equity market declines whereby the S&P 500 index was down over 6% in the first three trading days of the month* with half of that decline occurring on Monday August 5th. Since then the market has clawed back some of the month to date loss but is still down 3.2% for the first 7 trading days of August.
Equity market volatility, as represented by the CBOE S&P 500 Volatility Index (VIX), had been trending up from exceedingly low levels during the latter part of July. This was in part due to political uncertainty here in the U.S., geopolitical instability in other parts of the world, and mounting evidence that U.S. consumers are slowing their spending.
Then the August 1st jobs report came and it showed a marked slowdown in the labor market which accelerated recession fears. The equity markets fell swiftly as I mentioned above.
But what happened on Monday August 5th?
As this week’s Chart shows, the VIX spiked to 65 early in the day before settling at 39 by the end of the trading day. This sort of action has occurred very few times in the past, and usually in the midst of some sort of economic calamity.
Of course, I could be wrong (I sure hope not!) but this doesn’t feel like a macro economic calamity. It feels more like a market accident.
I suspect a significant driver of such a swift volatility increase was a function of the options markets, which I believe demonstrated a level of fragility which will need to be studied and researched. It will take some time for regulators, the market exchanges, and market makers themselves to fully understand what happened and what needed improvements should be put in place to ensure we have well functioning and liquid markets.
Since August 5th, the VIX has trended back down to the 20 range, which is roughlyy the long term average but higher than the abnormally low levels we saw in the recent past.
So I think we’re back to wondering about the path of the economy, Federal Reserve interest rate policy, and other factors that will drive market returns as we exit 2024 and head into 2025.
Investors will wrestle with these issues and I believe we will likely see continued volatility and perhaps choppy and directionless markets for the rest of the year.
*Source for all cited performance: YCharts.
🚙 Interesting Drive-By's
🤗 When Volatility is High, Berkshire Calms Me Down - from Kevin Xu [Link]
🤔 The Common Denominator of Success - from Albert Gray [Link]
💡 Trickle Down Longevity - from Chip Conley [Link]
📈 Why I’m Not Giving Up on a New Roaring ‘20s - from James Pethokoukis [Link]
☢️ A Nuclear Power Plant in Your Backyard - from Peter Diamandis [Link]
👋🏼 Parting Thought
If you have any cool articles or ideas that might be interesting for future Sunday Drive-by's, please send them along or tweet 'em (X ‘em?) at me.
Please note that the content in The Sunday Drive is intended for informational purposes only, and is in no way intended to be financial, legal, tax, marital, or even cooking advice. Consult your own professionals as needed. The views expressed in The Sunday Drive are mine alone, and are not necessarily the views of Investment Research Partners or Cache Financials.
I hope you have a relaxing weekend and a great week ahead. See you next Sunday...
Your faithful financial provocateur,
-Mike
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