Stocks fell hard on Monday of last week, with the S&P 500 closing down 3%. However, a better-than-expected jobs report on Thursday, which saw weekly initial jobless claims fall to 233,000 from 250,000 the week before, led to the S&P 500 rallying 2.3%. This rally was the biggest gain in nearly two years, and the rebound resulted in the S&P 500 being basically flat for the week.
As we have mentioned in previous commentaries, the many variables facing investors have led to volatile markets. Indeed, the CBOE Volatility Index, a well-referenced measure of market uncertainty, spiked to a high of 65 on Monday before returning to the low 20s at the end of the week. For comparison, throughout the month of July, this Index was in the mid-teens. Monday’s market decline was attributed to an unwinding of the “Yen-carry trade.”
The Yen-carry trade is a trading strategy used by hedge funds and other institutional investors that involves borrowing Japanese Yen at a low interest rate and using the funds to invest in assets that offer a higher return. This strategy capitalizes on the interest rate differential between Japan and other countries, aiming to generate profits from the difference in interest rates.
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