Stocktake: High market volatility likely to be the ‘new norm’

History shows that while volatility can rise rapidly, it often declines slowly

The New York Stock Exchange  on Wall Street. Photograph:  Johannes Eisele/AFP via Getty Images

The New York Stock Exchange on Wall Street. Photograph: Johannes Eisele/AFP via Getty Images

 

Markets have calmed down since March’s chaos but volatility hasn’t gone away – not by a long shot.

The Vix, Wall Street’s fear index, was trading at 17 (near its long-term median) in February before skyrocketing and closing at an all-time high of 82.6 in March. It has since retreated substantially, hovering around 30 early last week.

That may seem “rather tame” compared with March but it is higher than more than 90 per cent of prior readings, says Berlinda Liu of S&P Dow Jones Indices. History shows that while volatility can rise rapidly, it often declines slowly, says Liu, with markets remaining volatile for some time after a shock occurs.

A Vix of 30 implies daily market moves over the next 30 days are expected to be more than twice as high as normal.

Investors have become more optimistic but elevated risk “is likely to be the new norm”, says Liu, “at least for a short while”.

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