Republic Risk: It's Just Another Day...

RR: 

Equity Storm Watch Is RED on the S&P 500 and RED on the Russell 2000

Pack a lunch; it's going to be a day.

U.S. markets are now moving into the panic mode that comes every six to ten months.

This morning, the CBOE Volatility Index (VIX) skyrocketed over 55, indicating a return to fear in the market not seen since the height of the COVID-19 pandemic. 

Don’t fret. The Fed is already telling the markets what comes next…

Until that day comes though… we’ll watch as every freaks out. Our signals were red across the board last week (largely in trend since June 2), and we’ve been out of the way. The streak of Red signals continues, and this is the first big downturn that I predicted at the start of the year. But… it comes on the back of HUGE gains.

S&P 500 and Nasdaq 100 futures are down 4.5% and 6%, respectively, following a dramatic plunge in Japan's Nikkei index, which recorded its largest loss since the Black Monday crash of 1987.

Today's loss of 12.4% eclipses previous sell-offs, such as during the global financial crisis, which saw the Nikkei plunge 11%. This comes as the probability of a 50 basis point cut for September hits 99.5%, with a 0.5% chance for 75 basis points. The sudden expectation of a pivot from the Fed is causing rapid deleveraging, affecting over $1 trillion in carry between the yen and the US dollar.

In the tech sector, Berkshire Hathaway's recent disclosure that it has slashed its stake in Apple by almost half has sent ripples through the market, causing Apple shares to plummet over 10% at one point.

Meanwhile, Nvidia faces its own challenges, as delays in the rollout of its newest chip are contributing to a 9% drop so far this morning. Amidst all this, capital is seemingly rushing to safety, with yields on the 10-year tumbling to 3.72%, the lowest point since the SVB bank crisis of 2023.

Traditionally a safe haven in times of market distress, Gold has dipped slightly as margin calls ripple the globe. If this selloff continues, we should see gold push to new highs as investors look for somewhere safe to park their cash. There are just not a lot of clean options rights now, so Gold should see a bounce.