Something big has changed in this investing environment: Cross asset class volatility is accelerating. And much of it has to do with our call on #GlobalDivergences.
The contrast between 2017 and 2018 could not be more stark. The 2017 investing environment was extremely placid. Markets headed higher. Volatility fell. Now, you're seeing epic volatility clusters in global equity markets and more episodic breakouts in pockets of FICC (fixed income, commodities and currencies) too.
But here's where the real drama is... check out these volatility measures in global equity markets:
- SP500’s VIX Index is currently up +45% over the past three months and in the 90.3 percentile of the last 5 years
- Nasdaq’s VXN Index is currently up +23% over the past three months and in the 91.0 percentile of the last 5 years
- EM’s VXEEM Index is currently up +21% over the past three months and in the 82.4 percentile of the last 5 years
- EuroStoxx50 V2X Index is currently up +31% over the past three months and in the 79.1 percentile of the last 5 years
- KOSPI’s VKOSPI Index is currently up +23% over the past three months and in the 91.2 percentile of the last 5 years
- Nikkei’s VNKY Index is currently up +36% over the past three months and in the 77.8 percentile of the last 5 years
What could continue to drive equity volatility higher?
Here are three important things to watch:
- Inflation expectations
- A basing and strengthening of the US Dollar
- Global Divergences
(For more on our outlook for global growth check out: "Got #EuropeSlowing? Yup. Here's the Latest (Bad) Economic Data" and "China's Economy is Slowing... The Latest Evidence.")
That last one is important. "Cross asset class volatility should be happening as #GlobalDivergences (in both trending growth and inflation data) manifest," says Hedgeye CEO Keith McCullough. "Global growth divergences is easily our most contrarian Macro Theme @Hedgeye right now (most are positioned for some kind of a perpetual “Globally Synchronized Recovery”)."