The Week Ahead – Rip Van Winkle

Welcome to “The Week Ahead” where each Friday we take a moment to provide our thoughts on what we can expect in markets and the economy for the upcoming week.

Many of you may be familiar with the story of Rip Van Winkle, written by author Washington Irving. The story tells of a man who wanders into the Catskill Mountains, falls asleep, and wakes up decades later to find that the world has changed dramatically. 

If old Rip Van Winkle took a nap right after the U.S. Presidential election last year and woke up today, he would think not much has changed if he looked solely at “safety assets.” Gold prices back on November 9^th, 2016 were $1,278 and the 10-year U.S. Treasury was at 2.07%. Flash forward to this morning and gold is back above $1,350 and the 10-year U.S. Treasury is at 2.05%. Over the last few weeks we’ve seen central bankers positon for tighter interest rate policies, increased saber-rattling between nuclear-capable countries, and devastating natural disasters. While “safety assets,” such as gold and U.S. treasuries, are reflecting those fears, risk assets as a whole have continued to stubbornly move upward. The volatility and fear index, the VIX, is currently at 12, still below its long-term average of 15. Historically, 3-5% of selloffs in the S&P 500 have occurred on average every 2-3 months. The current rally has now gone 10 months without a 3% sell-off, the third longest since World War II. The two other times? 1993 (11 months) and 1995 (12 months).

Expect global macro events to continue to drive markets over the next two weeks until the FOMC meeting, where expectations of the normalization program will be announced. As noted in our most recent thought leadership piece, Thinking the Unthinkable, we continue to prefer to have some dry powder on-hand to take advantage of volatility when it returns. 

Data deck for September 9 – September 15: