Historic Volatility Splits Stock Investors

Historic Volatility Splits Stock Investors

over 3 years ago2 mins

Mentioned in story

US stocks are navigating their choppiest waters since 1933 – and with that ongoing volatility creating a massive mismatch in investors’ year-end outlooks, some smell an opportunity… 🌊

What does this mean?

The S&P 500index of US stocks, representing 80% of the value of the country’s shares and around a quarter of the entire world’s, has had a rollercoaster year. On 38 occasions and counting its value has swung more than 2% up or down in a single day – the hottest six months of stock-market volatility since 1933.

Even with a blistering ten-week rally now stalled, US stock prices remain twice as jumpy as normal. And given widespread uncertainty over forthcoming company earnings, not to mention resurgent coronavirus concerns, that volatility looks set to stay.

Recent months have seen the highest sustained volatility since 2011
Recent months have seen the highest sustained volatility since 2011

Indeed, June’s average daily volume of options trading – where investors bet on the future movements of stock prices – surpassed even manic March to hit its highest level in history. And judging by when many of those bets expire, the result of November’s US elections is likely to prove a particular flashpoint… 🗳️

Why should I care?

According to a recent survey from RBC Capital Markets, big institutional investors now see the elections – which could leave the Democratic Party poised to roll back corporate tax cuts – as a bigger threat to stock prices than coronavirus.

Disagreement as to the likely outcome may therefore be one of the main reasons for the 28% gap between the highest and lowest analyst projections for where the S&P 500 will end 2020 – the second-widest such gulf midway through any year since 2009.

A separate survey from last week illustrates the split among investors (Source: Bloomberg, DataTrek)
A separate survey from last week illustrates the split among investors (Source: Bloomberg, DataTrek)

With this lack of conviction offering those investors willing to take a view one way or the other an opportunity to profit, it’s no surprise derivatives traders are so busy. Check out our Pack on Futures & Options for a guide to getting started yourself. Just take care: such investments can be fiendishly complex… 🧐

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Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

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