Beneath Markets’ Calm Are Signs of Growing Investor Caution

Treasury prices rose, driving their yields, which move in the opposite direction, lower. The yield on the benchmark 10-year Treasury note fell 0.02 percent to 2.24 percent.

The Dow Minute by Minute

Position of the Dow Jones industrial average at 1-minute intervals on Wednesday.

Gold tends to outperform stocks when the markets are sliding, so it is unusual for such a conservative investment to beat equities when they have been on a tear as has been the case this year.

What is driving this anomaly, some say, is a recognition that eventually investors will no longer be able to ignore recent headline risks — be it nuclear tensions with North Korea, a trade war with China or a debt ceiling crisis in Washington.

“There has been a Pavlovian response by investors to disregard any piece of bad news or any spike in volatility — and that has been a very profitable strategy,” said Russ Koesterich, a portfolio manager for BlackRock’s $39 billion Global Allocation Fund. “But we do think that there are risks in the world that are not being priced in.”

To Mr. Koesterich’s point, some of the best-performing investments in the world this year have been exchange-traded vehicles that investors can use to bet against the VIX, the Chicago Board Options Exchange Volatility Index, better known as Wall Street’s fear gauge.

While the VIX rose nearly 9 percent on Wednesday after President Trump’s comments, it continues to trade at historically low levels, and many investors continue to wager that lots of money pouring into markets and an improving global economy will keep the index quiescent.

Mr. Koesterich, however, has been taking the opposite side of that trade. Since the beginning of the year, he has been adding to his gold position, and it is now the Global Allocation Fund’s second-largest position, according to Y Charts.

“Gold can help especially if the dollar is not a safe haven anymore,” Mr. Koesterich said, referring to how the dollar has weakened in response to the spate of news from Washington. “It is a good headline hedge.”

Mr. Koesterich is not alone in adopting a wary stance, especially now in August, when trading desks on Wall Street empty out and lower levels of buying and selling can result in sharper downward moves in the…

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