Global stock markets finished the week in a decidedly sour mood with the S&P 500 index finishing down around 3.5% since last Friday. Around half of that decline occurred in the last hour of the day, with volatility spiking as traders looked to protect their portfolios over the weekend. There have been several alarm bells sounding over the past few weeks, including a sharp decline in oil and weakness in the carry trade, and markets have been showin a level of fear not seen since mid-October.
The primary beneficiaries of the sell-off in equities have been long-dated government bonds, with 30-year US treasury bonds up 4 handles on the week. ETF’s like TLT have provided investors with an easy way to gain exposure to long-end Treasuries:
All eyes turn to the FOMC meeting next week, the last such meeting of the year. The Fed faces a tough road ahead now that they have ended QE. In particular, investors will be watching whether the Fed will remove their pledge to keep rates low for a “considerable period” in their policy statement. There have been rumors circulating this week that the Fed will remove such language. We will be watching the Eurodollar and Fed Funds markets closely next week.