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Roller-Coaster Week Ends Strong As Quant Strategies Suffer Biggest Losses Since 2003

TGIF!!!

 

Quant trading strategies extended their notable losses this week with CTAs suffering their worst 2-week drop since June 2003...

These drawdowns are marginally worse than the 2007 Quant crisis drops.

And Risk-Parity, plunging...

As Bloomberg's Dani Burger writes, it’s far from clear risk-parity and CTA funds react to the same set of inputs. While both invest in multiple asset classes and employ leverage, risk parity tends to be a slower and more passive strategy, aiming to engineer a smoother ride by giving smaller weightings to higher-volatility assets. CTAs, a type of managed futures strategy, follows short-term trends and tends to be more volatile and less correlated to the market.

Brean Capital's Peter Tchir fears there is more to come...

“I don’t think this move has caused much of an unwind from true risk parity funds, but much more from the homebrew or risk parity lite crowd -- making the real fun just beginning.

Risk parity selling should kick in when expected volatility of the strategy exceeds target volatility of the strategy.”

And with bond vol picking up, perhaps we are getting a glimpse this week

For sure it was a tough week for both bonds and stocks...

 

Payrolls managed an automatic bid under stocks today to rescue some of the major indices (Trannies to new record highs) but Small Caps scrambled back to unch for the week...

 

VIX tumbled today, almost back to a 10 handle...

 

FANG Stocks managed their best day since May today to run them into the green for the week

 

Banks were a mixed bag on the week - all higher but WFC stumbled and the last two days saw early ramps faded...Notably all closing below the highs on Monday's short day on Month-Start inflows...

 

The bond bloodbath continued with the long-end getting hit for 10bps and short-end holding in...

 

Steepening the curve back to pre-Fed rate-hike levels...

 

As 30Y remains well below 3.00% for now..

 

The Dollar Index had its best week in 3 months...

 

With CAD strength offsetting JPY weakness on the week...

 

Commodites were all lower led by a tumble in Silver (after last night's flash-crash)

 

Tough week for oil as Russian comments and US production trumped the drop in US inventories and spoiled the brief party (with WTI sagging back to a $43 handle)

 

Silver's worst week since Oct 2016...

 

And Gold suffered again, dropping back to March rate-hike lows...