Volatility has been the word of the month, and though last week saw much of it, the market ended overall much further to the downside. 

    For the week, only 5 of 26 categories ended up, with only short and convertible funds ending the week up more than 1%.  Of the 21 categories that were down, 17 were down more than 1%, 15 were down more than 2%, 9 were down more than 3%, and 4 were down more than 5%. 

    For the month now, only short funds are up, with the remaining funds down on average 8.5%. 

    As far as the week's correlations go, other than short funds, only commodity, municipal, and infrastructure funds had S&P correlations below 50%.

    Dollar-Weighted Category Return

Dollar-Weighted Category Performance

    On the week's dollar-weighted performance, only 2 of 26 categories ended the week black - short funds and China funds, returning a respective 2.87% and 1%.  Another 3 categories ended the week only marginally red, falling at most 0.36% percent - currency funds, Japan funds, and broad Asia funds.

    The remaining 21 categories were down at least 1% (call/write) and, at worst, nearly 7% (infrastructure).  Of these categories, the average return was nearly 3% down.

    With the week at last done, there still does not seem to be a single non-psychological motivator for the broad market losses.  Both gold and oil ended the week down, but stock and bond market returns do not seem to match what we would expect in such a week. 

    One possibility I offer as a suggestion is that foreign investors, having enjoyed the past two months, view the current dollar strength as a local maximum.  The US Dollar Index, having dropped throughout the market rally, is believed by most to continue to decline in the medium-term.  Given this, then regardless of their investment type, the current dollar high would provide them the best return after conversion to their home currency, thus explaining an otherwise unexplainable lack of historical correlation between asset classes.

Dollar-Weighted ETF/CEF Category Return

    12 of 26 categories were negative to start the week, as gains in crude and gold led to to a somewhat bearish underlying attitude.  Most affected by this trend were infrastructure and transports, both having seen a 3%+ week return prior.  Note as well that despite the 5% increase in VIX from Friday's close, small cap ETFs still closed above large caps.

    To the upside on Monday was primarily energy, driven by crude prices, as well as Asia, real estate, and retail.  Though Asia funds may attempt to continue their uptrends into today after high volatility in Asian markets, retail and real estate will likely feel the heat from this morning's retailers' negative assesments and the possible bond swings resulting form Bernanke's comments today.

Dollar-Weighted ETF/CEF Category Return

    A combination of surprisingly tame inflation data, strong payroll numbers, and falling energy prices resulted in a week of broad market gains.  Over the week, the largest gainers were real estate, Latin America, and emerging market funds by far.  Small caps, emerging markets, commodities, and retail funds ended the week with strong inflows as well.  A relatively quiet week and falling energy prices seems to have tempted large numbers of investors back into these higher-return assets, especially given their possibly oversold prices after last week's volatility.

    To the downside on the week were only short funds; no other category ended red or even unchanged.  The worst performing categories, though still positive, were healthcare, utilities, currency, convertible, dividend, and large caps.  With the VIX indicating overall market volatility fell 7% and the RVX indicating that small cap volatility fell 2%, it's not surprising that the more conservative asset classes saw a slow weak.  It is interesting to note, however, that healthcare was actually more negatively correlated on the week than short funds.  This is perhaps the result of the difference in performance between the S&P and the other indexes on which there are short ETFs, but such a strongly negative correlation is a trend that warrants further attention.