2020 Was A Bumpy Ride. Is The Worst Over?

The History Of Volatility Provides Clues On What To Expect

2020 was a bumpy ride, have we put volatility behind us? We think not.

The global economy was being supported by enormous central bank intervention even before the pandemic. World debt levels are at unprecedented levels and the global geopolitical scene continues to deteriorate. The path of economic recovery remains uncertain. There is no shortage of potential catalysts to trigger further volatility. The chart below illustrates a factor that almost guarantees elevated volatility in the years ahead.

2019 marked the 8th consecutive year that the S&P 500 experienced below-average levels of volatility. A key characteristic of volatility is its mean-reverting tendency. As such, the subdued volatility of much of the past decade suggests the 2020s will likely see above-average levels.

Our upcoming July issue will update our strategy for protecting the profitability of our long positions and approach to navigating the market volatility we anticipate. And as usual, we update our views of major equity, bond, currency, and commodity markets.

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