Equities ended on a very weak note, bringing the worst quarter since Q4 2008 for the S&P500 to an end. Stocks remain, perhaps remarkably to some, expensive relative to credit markets - especially HY which is feeling significant pain as issuance volumes drop 75% in the quarter to their lowest since Q2 2009. While stocks dropped around 2 standard deviations from a long-run mean, Treasuries did even better and rallied around 3.5 standard deviations - the second largest percentage shift in yields ever (once again Q4 2008 was the only better). Truly a remarkable day, week, month, and quarter and to be frank, one that shows no signs of slowing.
Quarterly percentage change in S&P 500 - down two standard deviations - highest since Q4 2008.
With Financials and Industrials bearing the brunt down around 19% and Utilities outperforming on the quarter in the US.
Quarterly percentage (yes I know that's a little odd but given the range of yields over the period we thought it would make sense) in 30Y Treasuries - down 3.5 standard deviations - second largest drop ever.
Since the end of QE2, there has been significant weakness (obviously) and we recommended a QE-Unwind trade back on May 16th. It has performed rather well - besting the S&P 500 by over 21.5%.
Somewhat interestingly though, the US remains the best performer among global equity markets (in USD terms) with only Mexico and Switzerland beating it in local currency terms for the quarter. S&P 500 -14.33% QTD, Dow -12.09%. Perhaps more notable is the year-to-date numbers where US equities are the clear winner (so far...) and the Dow down only 5.7% (S&P -10%) - last two columns for local and USD-based returns.
and finally with everyone talking about the big rotation-allocation trade from bonds to stocks - bear in mind that these reallocations are not done in a vacuum but based on a risk-budget and the change in the VIX this quarter just broke all records - with a 4 standard deviation jump on the quarter - perhaps now the bonds vs equities divide will narrow as we have discussed at length (drawdowns and risk-returns).
A few other fun facts:
- S&P 500 in constant USD terms (adjusted for DY that is) -9.8% QTD
- Gold still managed +8.2% QTD while Silver lost 13.85%
- Oil lost 18.95% on the quarter while Copper lost 27.6%
- HYG (HY bond ETF) lost 9.3% while LQD (IG bond ETF) gained 1.98%
- IG16 (investment grade credit spread index) widened 48bps (price equivalent from 100.4 to 98.3 or around 2% loss) while HY16 (high yield credit risk price) lost a huge 11.3%!
- oh and NFLX -56.9% & MS -41%!!!