Absent VaR Shock Adds Confidence ☕
From a risk perspective, the Street appears to be turning more positive on expectations of a stronger earnings season and an over-reaction of stocks to the recent rate move. Based on Citi data, the 4.9% sell-off in September was matched against a 10.3% realized move, making it the least volatile sell-off in the last 90 years. In other words, the equity risk-off appeared to have been very orderly and well managed within the confines of normal portfolio management. Most importantly, the absence of an unanticipated VaR shock has helped to keep risk-parity and vol-controlled funds on good footing, suggesting a lack of extreme pain and more holding power for these players despite the dramatic surge in yields.
