By Tyler Durden
“Well, that escalated quickly.”
That’s how Morgan Stanley’s chief cross-asset strategist Andrew Sheets summarizes events in the last week in his latest Sunday Start note, in which he describes how following one of the calmest stretches for stocks since the 1960s, an escalating war of words with North Korea hit late summer markets priced for relatively little vol with the result sharp and sudden: a 70% rise in the VIX index over three days, a 2% drop in global equities, and more than a few holidays disrupted. Fear not, though, because according to Morgan Stanley, whose outlook on the S&P is one of the most bullish on Wall Street, views last week’s events “as a standard equity correction within an ongoing bull market.” With volatility bearing the brunt of the repricing over the last several days, that’s where some of the most interesting changes lie.
And while Sheets lays out his reasons why the bank’s advice to clients is just to BTFD – or in the context of N. Korea, BTFAONW – Morgan Stanley does caution that things could get serious if the one scenario many – most recently Jeff Gundlach – have been dreading, namely the rise in volatility, …read more