Volatility is on the rise with the VIX strongly moving above three-month averages except for the Fed announcement spike in December. This is the first full month of the new Trump presidency, and the uncertainty has resulted in risk-taking caution.
The overall stock market was down 1.3% (SPX), but small caps declined by 5.7%. The Treasury bond index posted a gain of 1.54%. What was most important was the differential between low volatility (4.67%) and high beta stocks (-4.89%). Similarly, there was a strong difference between consumer stables (5.70%) and consumer discretionary (-9.37%).
All this suggests that the markets are discounted uncertainty and likely slowdown in economic growth. There is less euphoria and more of a belief that we are in a position of market change.
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