Warning brief: market sell-off risks may be at highest since pandemic outbreak. Warning brief: market sell-off risks may be at highest since pandemic outbreak. Warning brief: market sell-off risks may be at highest since pandemic outbreak.

Warning brief: market sell-off risks may be at highest since pandemic outbreak.

Macro 2 minutes to read
John Hardy

Head of FX Strategy

Summary:  We are at the end of the post-pandemic policy cycle and this brings with it the potential for a period of significant transitional volatility. This article is an abridged set of points looking at the evidence that the broader market is at risk of rolling over significantly in coming days and weeks and what investors can do to generally risk market exposure.

Note: this is an abridged version of a far longer article – see the original article for more background, charts and additional charts.

What: this market is set up for a potentially very significant correction (baseline of 10-20% given the magnitude of the recent draw-up) in the coming weeks as the post-pandemic policy cycle is coming to an end and already reversed for some countries. We may be early and /or wrong, but a cascade of developments and forward concerns have us on edge here. Please keep in mind that this article is meant to provide some food for thought rather than serve as a recommendation for action.


  • The Fed is pulling away the punch-bowl in coming months and has signaled as such recently in its clear indication that a tapering of asset purchase is on its was before year ahead, barring a mishap in the economy on the delta variant, etc.
  • Markets have started rolling over even before the Fed is set to pull out, with the bubbliest stocks as seen in our Saxo Bubble Stocks equity theme basket rolling over from their remarkable peak already in February, US long yields rolling over starting in Q2, copper and crude oil breaking down after highs in May and early July, respectively, suggesting forward concern for growth.
  • In FX, the US dollar is responding to the Fed’s shift and is poised near the highest levels of the year and AUDJPY, a classic proxy of all things pro-cyclical, has likewise broken down
  • Risk measures are picking up to the largest degree this year, as noted in our Saxo Global Risk indicator

Ways to reduce risk

  • Simply reducing leverage to avoid compounding possible downside risk.
  • For longer term and general inspiration, consider an all-weather, 100-year portfolio, as discussed by our Steen Jakobsen (Note that Chapter 8 discusses the portfolio principles).
  • Besides simply a partial reduction of exposure to the market, some may consider
  • Options hedges (long puts) in the S&P 500 and/or the Nasdaq 100 futures, which are very liquid markets. The tough part here is choosing strike prices and expiry dates
  • Hedging the market using a volatility ETF like the VIXM (ProShares VIX Mid-Term volatility ETF). The reason for using the mid-curve as opposed to products more sensitive to spot volatility is that it “costs less“ in terms of negative carry to hold the position, even if it is potentially less reactive tactically to moves in volatility.

In any case, be careful out there.


The Saxo Group entities each provide execution-only service, and access to analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Inspiration Disclaimer and (v) Notices applying to Trade Inspiration, Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular, no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Trading in financial instruments carries risk, and may not be suitable for you. Past performance is not indicative of future performance. Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/en-sg/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Markets or its affiliates.

Saxo Markets
88 Market Street
CapitaSpring #31-01
Singapore 048948

Contact Saxo

Select region


Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-sg/about-us/awards.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website are not intended for residents of the United States, Malaysia and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.