Wednesday, 03 May 2023 05:20

Market Volatility Subdued Despite Headline Risks

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In an article for Reuters, Mike Dolan discussed the widening gap between market volatility which has been trending lower since October of last year and headlines of various geopolitical, financial, and economic risks that are increasingly dominating headlines. The Federal Reserve is expected to hike rates despite signs that the economy continues to decelerate, considerable stress in the banking system, increasing chatter of a ‘technical default’ for the US Treasury if the debt ceiling is breached, and important data points in the coming weeks in the form of earnings from tech giants and the April jobs report. 

Despite these potential threats, the VIX, which measures stock market volatility, reached its lowest levels since November 2021. The stock market is also nearing a 20% move rise from its October lows, which many market participants would define as a new bull market. Volatility is similarly depressed in the Treasury market and the currency markets despite upcoming central bank meetings, indicating that this divergence between the VIX and headline risk is not unique to equities.

Finsum: There is a widening gap between various headline risk and market measures of volatility which are at multi month lows. 

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