Notable trends and dislocations (US) The Fed turns more hawkish, though vol remains subdued Last week, unsurprisingly the Fed opted to hike benchmark rates another 25bps. However, the market was more focused on the FOMC’s unexpectedly hawkish message, which indicated that it is willing to normalize policy despite weaker-than-desired inflation. Qur economists now think the Fed will announce balance sheet normalization in September and will hike rates again in December. A more hawkish Fed could result in higher real rates and a stronger USD, which ultimately should benefit our Growth to Value rotation trade of long XLF calls versus short QQQ calls (see Chart 15). The S&P 500 was more-or-less flat week-over-week as it gained only 6bps. The tech selloff continued, however, and the Nasdaq-100 dropped 105bps. Similarly, the Russell 2000 also dropped 105bps. Despite concerns on the Fed, the VIX fell 0.32 vol points to 10.38, and SPX 1m ATM implied vol declined 0.3 vol points to 7.6%. Chart 13: The Nasdaq has set a new record for consecutive days without a 5% peak-to-trough drawdown 10: On June 9, the Nasdaq dropped nearly 2% as investors unwound 88 crowded positions, resulting in a sudden selloff from a period of 407) relative calm. However, despite the volatility among tech names 120 =3 during the first week of June, the Nasdaq (CCMP} has not seen a 4100 BoB sey 5% drawdown from a prior peak (using closing data} in 150 aa es. days. This is the longest such streak in the Nasdaq’s history. 60 BB Sngse00 Prior to today, the longest periods of similar calm occurred ae during July ’83 and July ’86, when the index did not record a 5% 40 Be . ; Rw drawdown from a peak in 136 and 135 days respectively. 20 BEES ep 0 Heenan Source: BofA Merrill Lynch Global Research. Data from 1-Feb-71 to 16-Jun-17. Drawdowns measured from prior peaks and using close-to-close data. Chart 14: On 16-Jun, the SPX had its 11™ consecutive session of moves not exceeding 0.5% in either direction on a clos