Some say that it makes sense the market is off only 16% from its highs in the middle of the biggest economic meltdown since the GFC because it’s forward-looking. Things will be better 2-3 quarters from now, so it’s anticipating the return to normalcy. So, how do we explain its ongoing failure to anticipate the impact the COVID-19 pandemic would have on the global economy?
A better explanation is that central banks have directly and indirectly crushed volatility. VIX is off 28% since Apr 21 and 60% since Mar 18.Stocks have responded accordingly, with this weekend’s ramp job just the latest “breakout” from a bearish chart pattern and the sixth time in a row when an initial downturn during the after-hours reversed to a strong rally going into the open.
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