Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
Access both platforms from your single Saxo account.
Market on edge: Surging volatility
Koen Hoorelbeke
Investment and Options Strategist
Summary: In recent trading sessions and pre-market today, the VIX has surged dramatically, reflecting heightened market anxiety. With the VIX soaring and significant spikes in both the VVIX and Put/Call ratio, traders are bracing for substantial short-term market swings. Managing risk and avoiding panic selling are crucial strategies during this period of elevated volatility.
Market on edge: Surging volatility
In the last Thursday and Friday trading sessions, and pre-market today, markets have experienced a significant spike in volatility, sparking widespread concern among investors. The VIX, commonly known as the "fear gauge," has surged to levels not seen in recent times, reflecting a heightened state of market anxiety. This dramatic rise in volatility indicators, coupled with a spike in the VVIX and an elevated Put/Call ratio, underscores the current atmosphere of uncertainty. As markets grapple with these rapid changes, it is crucial for investors to understand the implications of these developments and adopt strategies to navigate this turbulent period effectively.
Also read: The perfect storm hits market and what comes next
Current Volatility Scenario:
The VIX, often referred to as the "fear gauge," has experienced a dramatic spike pre-market, soaring by 100.64% to a value of 46.93 (as of 12:12). This surge indicates heightened market anxiety and expectations of increased volatility in the near term. The VIX futures term structure is currently in backwardation, where near-term futures are priced higher than longer-term ones. This backwardation suggests that traders expect the current volatility spike to be short-lived but intense.
Below is a picture of the current VIX futures state:
The VVIX, the VIX of VIX
In addition to the VIX, the VVIX, which measures the volatility of the VIX itself, has jumped by 23.05% to 136.81 as of Friday's close. Values above 110 in the VVIX are considered significant and indicative of unusually high nervousness and volatility in the VIX itself. This elevation in VVIX highlights the significant uncertainty and the potential for sharp movements in volatility. Put/Call ratio
The Put/Call ratio, another key indicator of market sentiment, has surged to 1.96. A high Put/Call ratio implies that there are more put options being bought than call options, reflecting a bearish sentiment as traders seek protection against further declines. What This Means:
The current market conditions are indicative of significant panic and uncertainty. Elevated VIX and VVIX levels suggest that traders are bracing for considerable market swings in the short term.
The backwardation in the VIX futures term structure reinforces the expectation that this spike in VOLATILITY is a temporary reaction to current market fears. The VIX is a mean reverting index, meaning it will go lower again (ps: price action is NOT the same as volatility, so while volatility may decline, that is not a garantuee that the price will go up)
What To Do:
- Manage Risk: It's crucial to reassess your risk exposure. Ensure that your positions are not overly leveraged, as high volatility can lead to rapid and significant losses.
- De-Risk Where Needed: To avoid margin calls and potential liquidation, consider reducing positions in high-risk assets or leveraging products.
- Volatility Mean Reversion: Historically, volatility tends to revert to its mean. While the current spike is concerning, it is likely to decrease once the immediate panic subsides.
- Avoid Panic Selling: Making decisions based on fear can exacerbate losses. Instead, focus on a calculated approach to managing your portfolio.
- Short-Term Volatility: Be prepared for continued volatility in the very short term. Market conditions are likely to remain turbulent, so stay informed and ready to adjust your strategies as needed.
Conclusion:
In summary, while the current market environment is challenging, it's essential to remain calm and take a strategic approach to managing your investments. Volatility is a natural part of the market cycle, and while it can be unsettling, it also presents opportunities for those who are prepared.
| Previous "Market on edge" updates |
|---|
|
Latest Market Insights
Quarterly Outlook
-
-
Quarterly Outlook
Equity Outlook: Will lower rates lift all boats in equities?
Peter Garnry
Chief Investment Strategist
After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto... -
Quarterly Outlook
FX Outlook: USD in limbo amid political and policy jitters
Charu Chanana
Chief Investment Strategist
As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ... -
Quarterly Outlook
Macro Outlook: The US rate cut cycle has begun
Peter Garnry
Chief Investment Strategist
The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c... -
Quarterly Outlook
Commodity Outlook: Gold and silver continue to shine bright
Ole Hansen
Head of Commodity Strategy
-
Quarterly Outlook
FX: Risk-on currencies to surge against havens
Charu Chanana
Chief Investment Strategist
Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo... -
Quarterly Outlook
Equities: Are we blowing bubbles again
Peter Garnry
Chief Investment Strategist
Explore key trends and opportunities in European equities and electrification theme as market dynami... -
Quarterly Outlook
Macro: Sandcastle economics
Peter Garnry
Chief Investment Strategist
Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p... -
Quarterly Outlook
Bonds: What to do until inflation stabilises
Althea Spinozzi
Head of Fixed Income Strategy
Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ... -
Quarterly Outlook
Commodities: Energy and grains in focus as metals pause
Ole Hansen
Head of Commodity Strategy
Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities i...
Disclaimer
The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.
Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)