A client recently asked if the pullback was a buying opportunity. My emailed response is below:

Depends on your time horizon 🙂 I think so, as most fundamental data points in the world are very positive, while psychological skittishness is still high. I think the narrative around rate rises “causing” this is wrong; there are a lot of things going on. If there has been any psychological tipping incident in the past few days, it could be the story that the President’s attorneys approved a special committee to investigate the FBI and DoJ’s surveillance (the President at war with the top law enforcement agencies is not a good look for US politics). Also, there has been an enormous amount of money betting on “vol,” which is not something that can be wagered on directly, so you’ve seen a ton of money go into these leveraged bets on second derivatives of an asset’s pricing, potentially more than the market can handle, which looks like it could be coming unwound and causing secondary knock-on effects across the market. In addition, risk-parity and other programmatic quant traders are selling based purely on price movements and not fundamentals. The move feels particularly bad given how great the market has been — consistently higher with low volatility, so a move this big is especially jarring. In reality, the market is where it was two months ago, when everyone was thrilled.