Risk Parity Market Environment About To Change, Trump Volatility Will Return: BAML

With polls showing Presidential candidate Donald Trump creeping ever closer to rival Hillary Clinton, who appears to be taking a defensive wait out the clock keep head down strategy, a Bank of America Merrill Lynch report says Clinton's lead will continue to narrow. In fact, there will come a point for market where political concern, benign for most of the summer, will revert to volatility. This won't look pretty for risk parity strategies, the report projects, breaking the calm during a relatively strong year for the strategy.


Risk parity - Markets are pricing in perfection, a Clinton victory with Republican control of Congress
Last Friday's sharp loss for the risk parity strategy, a rarity in a world of calm, is not a one off event. For those who watch algorithmic market environments, get ready because the short volatility environment is likely to give way to political concern before the election.

The bank report didn't address algorithmic market environments but did note an NBC News poll out Tuesday that noted the new and improved Trump chipping away at Clinton's assumed insurmountable lead. After a series of historic gaffes and a change in campaign management, Trump closed the gap by two points overall. With Clinton still leading 48% to 42% -- some polls even show a closer gap -- and yet the prediction markets pointing to an overwhelming 88% chance of the corporate-backed Clinton winning, BAML's FX and Global Rates Strategist David Woo likes the mean reversion trade.

"History tells us to expect Clinton’s lead to narrow and volatility to rise in the final stretch of the elections," Woo writes in an August 26 Cause and Effect report titled "Pricing in a perfect gridlock."

SORRY!

This content is exclusively for paying members. Access all of our content on including years of timeless investment news and in depth analysis for only a few dollars a month by signing up here while also supporting quality content and journalism, or learn more about our premium content here

If you are subscribed and having an account error please clear cache and then cookies if that does not work email support@valuewalk.com and we will get back to you as quick as humanly possible


Saved Articles
X
TextTExtLInkTextTExtLInk

The Life and Career of Charlie Munger

Charlie is more than just Warren Buffett’s friend and Berkshire Hathaway’s Vice Chairman – Buffett has actually credited him with redefining how he looks at investing. Now you can learn from Charlie firsthand via this incredible ebook and over a dozen other famous investor studies by signing up below:

  • Learn from the best and forever change your investing perspective
  • One incredible tidbit of knowledge after another in the page-turning masterpiece of a book
  • Discover the secrets to Charlie’s success and how to apply it to your investing
Never Miss A Story!
Subscribe to ValueWalk Newsletter. We respect your privacy.

Congrats! Are you a smart person?

We have an exclusive targeted & limited time offer for being a sophisticated and loyal reader.

ValueWalkPremium is a website and newsletter on the latest industry news much of which is not in the public domain and obtained via our sources.

We also have 10 years of resources on how to use this information to better your investment process.

Sign up for  today and get our exclusive content for 40% off. This is our second biggest discount ever!!

Use coupon code VIP20 or click on the button below

Limited time offer only ENDS 3/31/2020 or after the next 45 subscribers take advantage whichever comes first – please do not share this discount with others

 

0