Week Ahead: Stock Volatility To Rise; Dollar Could Bottom As Gold Heads Lower

The dual week downward trajectory was the first time this has occurred since April, with technology stocks bearing the brunt of the selling. That’s left the NASDAQ Composite roughly 10% off its all-time-high, achieved just six sessions ago. Investors seem to have abruptly realized that valuations are simply too high, and that they’ve been paying full price, if not more so, while uncertainty remains at extraordinary levels.

So what changed from just weeks ago when markets reached all-time highs, climbing higher for eight out of nine weeks? How is it that investors bought stocks, then without warning sold them off almost in unison.

To be fair, skepticism about a compromise on a coronavirus stimulus package ahead of the election and signs of a slowing recovery in the labor market have all contributed to the negative sentiment. But isn’t it strange that the reversal occurred so abruptly, as if there was a sudden consensus on the matter?

To be fair, the politicization of coronavirus relief isn’t new, and the decelerating labor market isn’t a surprise either. All of these factors have been brewing for a while. Could it have been a coincidence?

Hardly. What we are seeing is the essence of herd mentality.

First, it was a pack of bulls, driven by the Greater Fool Theory. Everyone knew prices weren’t a bargain, and there have been more than enough reports on how many things can go wrong—with the pandemic; with the US or European relationship with China; with the broken energy market, the unstable dollar, yields remaining near record lows; social unrest across the country ahead of what promises to be acrimonious elections potentially adding to the nation’s polarization. In short, there’s plenty of risk that could weigh on markets.

In our view, the smart money knew they were buying a hot potato, hoping to pass it

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