The Committee's volatility playbook: Here's what you need to know

Market Trends & Retail Investor Behavior - Demand for call options has outpaced puts for 24 consecutive weeks, tying the longest streak ever recorded since 2020, indicating strong conviction among retail traders [1] - JP Morgan's retail radar shows robust imbalance with inflows exceeding outflows by 65 billion, surpassing the year-to-date average of 64% [3] - Crypto markets experienced a significant sell-off, reflecting risk appetite shifts, with recovery not fully realized, indicating a heat check mechanism [9][10][13] Investment Strategies & Portfolio Adjustments - Some investors derisked through the middle of the summer, trimming ETF baskets due to anticipated seasonal headwinds and potential Fed rate cut uncertainties [4][5] - Increased allocation to SPY (S&P 500 ETF) and IJR (small-cap ETF) after a market sell-off, viewing it as an opportunity to fully allocate ETF slices in portfolios [4][6][7][9] - Some firms trimmed positions in Amazon, Meta, and Alphabet due to their large size in portfolios (approaching 85%-9%), aiming to reduce risk amid expectations of slowing earnings growth [14][15][16] - Proceeds from selling positions were reinvested into other names, maintaining market exposure [17] Market Valuation & Economic Factors - The market rebounded on Monday after Friday's sell-off, influenced by reassurances regarding the trade war with China [9] - Relative valuations of the MAG 7 stocks are considered to be in the middle of their range over the last decade, suggesting they are not necessarily overvalued [8] - Fed Chair Powell's discussion of an endgame to quantitative tightening (QT) influenced market response, particularly in the Russell 2000 [7] Liquidity & Risk Pricing - The speed at which risk is priced and repriced has accelerated, with cycles that used to take weeks or months now occurring in a matter of hours [11] - Some firms still have 85% of cash to deploy in main portfolios, indicating a cautious approach and potential for further investment [12][13]