Last week's equity rallies looked too good to last. There are plenty of reasons to fear that Monday's retreat in Europe signaled the start of the next substantial leg down.
Chief among those reasons is that volatility has a long way to go before it returns to recent ranges, or even to levels low enough for investors to avoid adjusting their valuation assumptions. And there are all manner of potential vol shocks looming, from 2-yr Treasury yields jumping to the highest since 2008 early Tuesday, to $258 bln of U.S. bond sales, China's return later this week from a five-day break, Italy's election. And then there's the possibility of fresh Trump-centric turmoil as the President faces fallout from the Mueller indictments, trade conflicts over steel and aluminum and the reaction to the Florida shooting.
If markets can navigate all that without a fresh jump in volatility then shares can resume a smooth uptrend, but that's a very big if.
Source: Bloomberg Pro Terminal
Jr Trader Alexander Kumanov
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