As last week’s market sell-off has been viewed as a marker of heightened volatility for the global equity market ahead, two big names on the Street warn investors to gear up for a new era of market turbulence.
The recent market correction was driven in part by fear of higher interest rates following a decade of loose monetary policy coinciding with a nine-year bull run. As the world adjusts to higher rates, a sell-off in global stock funds won’t end anytime soon, according to Bob Prince, who leads Bridgewater's $160 billion of investments alongside founder Day Dalio. (See also: Apple Is a Safe Bet Amid ‘Market Turmoil’: BofA.)
The co-chief investment officer at the world’s largest hedge fund noted that as “there had been a lot of complacency built up in the markets over a long time,” his firm does not “think this shakeout will be over in a matter of days.” He sees a larger sell-off to come following last week’s downturn, in which the S&P 500 saw $2 trillion in market cap lost by the end of Thursday.
A 'New Macroeconomic Environment'
Rising bond yields coincided with a collapse of a handful of volatility-linked funds and algorithmic trading strategies last week. As the Cboe Volatility Index (VIX) surged to its highest level since 2015, VIX-related securities were halted, while options trading in benchmarks for market swings swelled.
"Last year equity markets had a free run. But this year we are going from central banks contemplating tightening policy to actually doing it … We will have more volatility as we are entering a new macroeconomic environment,” said Prince.
Goldman Sachs’ Brian Levine, co-head of global equities trading at the investment bank, echoed the more bearish sentiment in a note to the firm’s larger clients. He wrote that “the ‘buy on the dip’ mentality needs to be thoroughly punished before we find the bottom,” championing a “genuine regime change, one where you sell-the-rallies.”