Chart of the Day: Be Careful Out There, Volatility Risk Is Rising

11/15/16 09:50AM EST

Chart of the Day: Be Careful Out There, Volatility Risk Is Rising - z light

It's never a good time for an investor to be complacent. Perhaps now more than ever.

Volatility risk is rising. It's not falling. In other words, if you're among the investors who bought the S&P 500 and sold bonds into the election you should be very concerned about what may come next.

The Chart of the Day below illustrates this point. It shows S&P 500 "realized volatility." Realized volatility is simply a measure of the magnitude of an asset's daily price movements, regardless of direction and over a specific time period. In other words, it contextualizes current volatility against historical. It then spits out a normalized value so volatility can be compared across asset classes. 

The result? Volatility across asset classes is rising. Here's the breakdown of 10-day versus 90-day realized volatility for the S&P 500, Long Bonds, and Gold via Hedgeye CEO Keith McCullough in this morning's Early Look:

  1. US Equity (S&P 500) 10-day realized volatility is 14 vs. 90-day = 10
  2. Long Bond (TLT) 10-day realized volatility is 24 vs. 90-day = 13
  3. Gold’s 10-day realized volatility is 19 vs. 90-day = 13 

To be clear, this is a disconcerting trend. It is one reason why we're telling investors to be cautious and raise cash. 

Chart of the Day: Be Careful Out There, Volatility Risk Is Rising - 11.15.16 EL Chart

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