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John is the Chief Investment Officer of Evercore Wealth Management, responsible for the firm’s market outlook and asset allocation policy. He has over 30 years of experience managing balanced investment portfolios for high net worth clients and foundations and endowments.
Prior to joining Evercore in 2008, John was a managing director of U.S. Trust, which he joined in 1984. He was responsible for managing $2 billion of client assets, representing many of U.S. Trust’s most significant clients. Additionally, John served as the Chief Investment Officer of U.S. Trust of New York from 2003 to 2005, and as the head of Equity Investments and the Chair of the Equity Investment Committee from 2005 to 2008. For 15 years, he was an active participant in the formulation of overall investment strategy and a member of the U.S. Trust Investment Strategy Committee.
Prior to attending business school, John was on the staff of the U.S. Senate Labor and Human Resources Committee and worked on federal budget matters.
John received his B.A. from Bucknell University and an M.B.A. from New York University. He holds the Chartered Financial Analyst designation and is a former member of the Board of the New York Society of Security Analysts.
How is it possible for the stock market to swing 10% up or down in a single day, or for the entire Treasury bond yield curve to plunge by over 50% in under a month? Is it all about COVID-19, or is there more at play in the markets?
The recent level of market turbulence suggests that the most active investors are deploying a tremendous amount of leverage. Futures contracts that magnify positions by as much as twentyfold can disrupt traditional trading and leave investors reeling.
One very popular investment strategy may be especially to blame. When Federal Reserve Chairman Jerome Powell said last October that the Fed would not increase interest rates until inflation persisted above 2%, traders calculated that they could make large leveraged bets on a fall in short rates (from three months to two years). In other words, own the S&P 500 and enter into a futures contract with enough leverage to profit from, say, a 1% drop in interest rates to offset a 10% loss in the stock market.
The traders were further encouraged by evidence of the so-called Fed put; the Fed’s willingness to cut interest rates if the stock market declined. Their risk party play seemed like a sure thing; there was almost no chance that short rates would rise. By March 9, when the entire yield curve out to 10 years was no more than 0.5% and the stock market had dropped 20%, the trade had a 10% profit.
But at that point, there was no more room for rates to fall unless the Fed took interest rates into negative territory (still considered highly unlikely), so the interest rate hedge on the stock market became ineffective.
Up to $1 trillion may have been invested by hedge funds and large institutions in versions of this trade. Most of these trades have been unwound because these investors were only interested in owning the stock market when they thought they had a very good hedge. Once that was gone, they became sellers at any price.
Most of the risk parity trades have now been closed out and other highly leveraged positions have been liquidated. While the markets will still reflect intense investor reaction to the pandemic and its many associated economic headlines, we do expect a reduction in the current extreme volatility.
John Apruzzese is the Chief Investment Officer at Evercore Wealth Management. He can be contacted at apruzzese@evercore.com.
Investment and Wealth Management services are provided by Evercore Wealth Management, LLC an investment advisor registered with the U.S. Securities and Exchange Commission (the "SEC") under the Investment Advisers Act of 1940. Registration with the SEC does not imply a certain level of skill or training. Trust and custody services are provided by Evercore Trust Company, N.A. a national trust bank regulated by the Office of the Comptroller of the Currency.
Client retention rate is based on data from 06/30/24 – 06/30/25. Assets under management are as of 06/30/25
