Why We Can Expect Years Of High Volatility Ahead

WHY WE CAN EXPECT YEARS OF HIGH VOLATILITY AHEAD

2020 has been 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 the pandemic and 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.

We expect the volatile times ahead to produce both great risks and opportunities for the engaged, active investor.

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