Risk Parity Funds Suffer Worst Month Since 2015 As Breadthless, Fearless Stock Market Soars

Tyler Durden's picture

The market moves since the US elections have been both big and surprising, and as JPMorgan notes, fund managers have been either too slow or too reluctant to jump into the Trump trade. However, algo-based Risk-Parity funds suffered the most with their biggest loss since Dec 2015 as market 'fear' tumbles to 9 month lows (and stocks are the most overbought in 13 years).


Risk Parity funds were hurt as their equity gains were not enough to offset the sharp selloff in bonds on which Risk Parity funds are typically exposed by four times as much as equities. Correlation between stocks and bonds has normalized thanks to this huge post-Trump divergence (but we note the last time the regime shifted like this was ahead of August 2015's equity plunge)...


U.S. stock markets are signaling calm waters ahead. As Bloomberg reports, the Credit Suisse Fear Barometer has tumbled 25% since the day before the presidential election, while the S&P 500 Index reached an all-time high. The gauge that compares bearish options prices with bullish ones three months from now has dropped to its lowest level since February.


So 'Fear' is absent, and as CNN notes, Greed is on the rise...


Greed indeed - with Small Caps up and almost unprecedented 15 days in a row. The last time they were this overbought (in 2010), the Russell 2000 fell 21% in the following two months...


Bonds are the most oversold since 2007 (after which they exploded higher in price, lower in yield)


And equity market breadth certainly not supportive...


Of course, with The Fed about to hike rates (with certainty) and financial conditions tightening drastically, what could possibly go wrong?

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knukles's picture

Imagine the disappointment to be reflected in markets when reports circulate as to the loss of Shackleton and his merry band of intrepid Antarctic explorers, post their group hug pomegranate colon flush.
What else could not be fully discounted?

fukidontknow's picture

Hillary's little love team over on MDB's Accredited Times are having a Spirit Cook


and demanding that fishermen be arrested and have their boats handed over to rapefugees


F$$k you Accredited Times

The Saint's picture
The Saint (not verified) fukidontknow Nov 26, 2016 7:04 PM

Danger  Will Robinson.  DANGER!

g'kar's picture

Marina Abramovic and Jacob Samuel....discredited times and their dual passports

debtor of last resort's picture

Stawks are just a hedge against the idiocy of the political cycle.

jmack's picture

dude, pizzagate has legs.... https://www.youtube.com/watch?v=IUGj5IhepMg  for just one of 15 youtubes that have some pretty damning circumstantial evidence.







Arnold's picture

I saw it in Accredited Times first.

Jack Oliver's picture

The market now ramps on - Good news - Bad News and 'indifferent' FUCKING news !! 

They FED have to put their newly created money somewhere !! What will it take to 'shake out' the markets ?? 

The only thing I can think of - is a FUCKING 'Polar Shift' !!

North America would become South America !! That might do it !

bentaxle's picture

Luckily HFT algo's don't need to eat.

Fed-up with being Sick and Tired's picture

Next week, Bonds pop.  Following the Crude plunge and then pop after the Fake Opec meetings.  Then, commodities will pop, Gold leading and we will have  PULLBACK in Equities after we hit 2500.