We are past the peak of the U.S. earnings reports. In the past, any unusually high individual stock volatility after an earnings announcement was a pattern that only appeared at macro inflection points.

Hedge funds were not immune to recent market developments. They were down during the first half of October due to the underperformance of CTA, L/S Equity, and Special Situations strategies. Meanwhile, Merger Arbitrage, Fixed Income Arbitrage, Global Macro and L/S Equity Market Neutral strategies were resilient.

Risk assets have yet to find stable ground after the recent turmoil. The rebound in equities since the October 11th trough appears fragile. Last week, the minutes of the latest FOMC meeting were hawkish and Italy's 10-year sovereign spread with Germany jumped to levels unseen since the eurozone sovereign crisis.

While hedge fund performance and alpha were honorable until the summer, our analysis suggests that they erased about 2.5% of alpha since June, with no turn in sight yet in September.

With the U.S. equity market under selling pressure in early September, the MSCI World has registered its worst week since late March, down almost -1.5%.