Yesterday marked a continuation of a re-pricing of risk. The market is demanding a greater premium to hold riskier assets as a result of a general change to earnings expectations and the future cost of capital. Put those factors into a pot that contains a market that hasn’t seen a significant correction in over seven months, and it becomes understandable why buyers aren’t letting sellers out too easily.
The Dow closed 326 points lower last night, something that continued into the overnight session in Asia. The Nasdaq’s tech stocks were particularly hit, as the winners of the past twelve months were subject to a broad unwinding. Markers of fear and protection showed themselves, too. Treasuries, gold and Vix contracts became heavily demanded, pushing yields down and driving up the cost of portfolio protection.