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Markets Experience Roller-Coaster Ride with Technical Correction

Rao Chalasani

New Jersey resident Rao Chalasani has a background with Bank of America-Merrill in New York, NY, as director of risk strategy and chief technology officer. Staying current on events around the world, Rao Chalasani follows politics as well as stock market movements.

Early 2018 has witnessed choppy waters for those in the global financial markets, with many observers believing that the movement downward represents an overdue correction. A recent Bloomberg article emphasized that the ongoing turbulence is related to technicals, rather than fundamentals. In other words corporations and economies are not suddenly in danger of insolvency.
One aspect of this is that “short-volatility” trades have been unwound, reflecting investor holdings in new products such as those that provide investors inverse stakes in volatility indexes. With investors moving toward new paradigms, including those “turbocharged” by leveraged holdings, sudden volatility brought margin calls and necessitated quick sales. In addition, traditional diversification strategies have not worked as expected, with safe assets such as government bonds unexpectedly susceptible.
Given the technical nature of the sell-off, the consensus is that the current turmoil is unlikely to infect corporate and economic fundamentals in the long term, with continued growth on the horizon.

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