The world has never been more uncertain
The number of news stories that contain the word “uncertainty” has reached a record, according to Bloomberg data, which include stories published from multiple sources. While President Trump might dismiss such media coverage as biased, other measures of global anxiety are also flashing caution.
Wall Street versus Washington
The Chicago Board of Options Exchange Volatility Index, a gauge of investor anxiety known as the VIX, has been unusually calm in recent months, prompting a swell of analyst commentary about Wall Street’s stubborn “fear gauge.” Look to Washington, however, and you’ll find plenty of disquiet among policymakers and politicians. The difference between the VIX and the Global Economic Policy Uncertainty Index is now at its highest level on record.
Price of plunge protection
One theory as to why the VIX has been muted recently is that stocks are increasingly moving in different directions under President Trump, suppressing realized correlation and with it, index volatility. Those looking for evidence of market nervousness must look at the CBOE Skew Index, which measures the price of buying protection against more dramatic moves in the S&P 500. On that basis, investors appear to be concerned about tail risks.
Money pouring into gold
Like it or loathe it, gold has long been used as a hedge and money has been pouring into exchange-traded funds tracking the precious metal. Again, those inflows have not been matched by movement in the VIX, and a gap has opened up between the two measures.
“While stocks and corporate bonds have rallied year-to-date, we see a very incongruous kind of calm in the markets at present,” Bank of America Corp. Credit Strategist Barnaby Martin wrote in a note to investors. “Note, that while equity volatility is still hovering around record lows, inflows into gold funds year-to-date in Europe have surged.”