Track Fear in the Market With These Signals

ON JAN. 21, Paul Tudor Jones gave a television interview in Davos, Switzerland. U.S. monetary and fiscal conditions reminded him of early 1999, he said, and markets could still have a year or 14 months to run before a blowup.

- By Steve Gee, David Croen, Anna Yass and Nicholas Sullivan

But he had a caveat: “I would say we’ve got a curveball with this coronavirus, I think that’s a big deal.” If he were an investor, instead of a trader, Tudor Jones said, he’d be really nervous.

That kind of “Spidey sense” for identifying risk is important for market professionals. We’re supposed to know how to spot meltdowns before they happen, to smell fear in the market. Stocks, bonds, commodities, currencies, and derivatives all respond quickly to fear. Market participants hold global multiasset portfolios that are managed around the clock. With greater market transparency, more data and news, and sophisticated quantitative models, investors can implement risk-off strategies to liquidate marketable assets and preserve capital.

These workflows will alert you about important market- moving signals so you can position yourself against downturns. And maybe identify some opportunities to profit.

1. First, consider what fear looks like on a chart of the U.S. Dollar Index, the S&P 500 index, and the 10-year Treasury. Run {DXY Index GP }, and you can see how much the Dollar Index moved around in February and March. Then click Chart Content and add lines for {SPX Index} and {GT10 Govt}. In a flight-to-quality scramble, such as in February− March 2020, the S&P 500 falls, the 10-year Treasury yield plunges, and the dollar gains.