Christopher Verrone, Chief Market Strategist at Strategic Research Partners, says market fear is peaking, suggesting a near-term bottom and upside ahead, with bonds offering strong value.

New York

Christopher Verrone, Chief Market Strategist at Strategic Research Partners, provides insights into current global market dynamics, suggesting a potential sentiment shift among investors. According to Verrone, market fear is peaking, and this may indicate a near-term bottom with potential upside ahead. He highlights the effects of significant market activities, such as indiscriminate selling and spiking put call ratios, which are usually indicative of stress in the market.

Recent market actions have shown retail investors pouring approximately $125 billion into the market. Verrone interprets this move as a reflection of changing investor sentiment, where significant stress and fear have translated into active engagement in the market. He notes that this is evident in the record-setting volumes of inverse ETFs, suggesting a shift from bearishness to a more constructive outlook.

Shifting focus to the bond market, Verrone expresses confidence in bonds, particularly the two-year Treasury notes. Despite recent yield bounces, he anticipates that these are temporary, stemming from a "sell what you can" mentality. Verrone argues that the Federal Reserve will likely act more aggressively than currently expected, suggesting that further drops in two-year yields are possible.



Retail poured $125B into the market—and that reflects sentiment shift

All right, why don't we start with your word of the day. A lot going on in the global markets and the economy. Pushback from China, pushback from the EU. What is your word of the day? It's asymmetry, and why asymmetry here? Because I think we've done enough on the downside for now. The longer term questions we can discuss here in a minute, but we look for really three conditions to come together at any really high climactic moment. We look for indiscriminate selling. I think we certainly had that on Friday. It's 72% of the S&P with a negative two standard deviation move on that day. That is like a 2020, 2008 type reading. We look for sentiment extremes as well. Put call ratios are now finally starting to spike. They had been dormant for weeks. That was a spot of concern for us. Those are now starting to show some stress. And then third, we look for very capacitive price action. You got a surge in new lows on Friday and into yesterday morning. So I think at least in the near term, those conditions present a very asymmetrical backdrop where downside probably capped from here. And those first rallies out of these levels can be a 10 to 15% move. That gets you to like 5,400 on the S&P. So you mentioned the calls. What about the puts? Have you seen the ratios change there at all? Yeah, so put call ratios, so looking at puts divided by calls have really started to surge. So put volume is very, very active here. You see it with VIX as well. I think we touched 60 yesterday, but more importantly for us, if you look at the VIX curve, so the shape of the term structure, spot VIX is trading something like 25 points above the future contracts. Very unusual environment to be protecting the present at the expense of the future. That's generally a pretty bullish condition, at least in the near term. What do you make of some of the action that we saw yesterday? SPY seeing its biggest trading day ever. Retail investors putting about $125 billion in the market as well. What do you make of that? Well, I think it's all reflective of when we talk about sentiment, watch what they do and watch what they say. People have been talking bearishly for weeks, but we never really saw it in the price action until the last couple of days. I think the volume data certainly reflects fear, it reflects stress. You did 125 billion plus on SPY yesterday. Also, if you look at the inverse ETF, so the product where you can short S&P or short triple Qs, volumes in there set records yesterday. So I think it reflects, again, this broader sentiment package that has moved more into the constructive camp. All right, we're talking a lot about equities, but your pick's actually in the bond market. Yeah, I like the two-year long here. I know yields bounced yesterday. I think that's short-lived. I think that was some sell what you can type mentality out there. But ultimately, we think the Fed has to go here and it has to go more than I think people will ultimately expect. Two-year is lower. I think twos to 3% is not out of the question here. They trade 375 right now.

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