Markets Stage Reversal After Broad Sell-Off, Risks Remain But Epicenter Holding Up Well

Key Takeaways

- S&P 500 closed at 4,455.48 up from 4,432.99 last week. The closing level this week is within a few points of the close two weeks ago.

- Monday saw a vicious sell-off with an intraday low of 4,305.91.  Markets closed up 3.4% from that level on Friday.

- Despite the VIX spiking to an intraday high of $28.86, credit markets didn’t budge much, which helped us advise to lean into the sell-off. VIX closed, remarkably, at $17.75.

- Key risks remain to the market and given the intensity of the sell-off (It was a 1/20 probability event since 1970 which last occurred on 5/14/21) there is a greater near-term chance of elevated volatility.
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Last week we used the example of the Yom Kippur War and a daring attack by General Ariel Sharon as an example of how sometimes in the heat of the greatest risk, even though every instinct may be telling you to disengage, retreat, or for our purposes to sell, that sometimes precisely the way out of these perilous situations is to take a calculated risk instead.

The reason we bring this up is because we don’t want you to think of last Friday’s note as linked with this event but rather as a piece of perennial market logic that can always be applied. Contrarian investing isnâ€...

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