Short-term update: this article was liked on social media by WSJ Network's MarketWatch.
We were cited in the most popular WSJ's MarketWatch article in late July, conveying confidence that the markets reached temporary peaks and volatility sitting on temporary lows. While markets could move slightly, they were unquestionably due for a correction as we head into the autumnal months. There was no reason to be long the markets given such risks, despite many Wall Street bulls pressing hard in the headlines assuaging any concerns about increased risk and eviscerating value, while jointly raising their price targets. Something mathematically imprudent to do as summer winds-down. Since the time of that article above, the S&P has only oscillated +0.5% daily through last Friday. That day everything changed as we said it must. Friday markets slammed to a level 3% below their all-time highs (-2.5% on Friday alone), and volatility spiked higher in one of the largest percent moves on record. This article explores some of the hints that were noticeable and admonished about for weeks now. And the research also explores the specific market sectors that have in recent years continued to bubble up, and to be aware that they have not fully made due last Friday.
In recent articles we describe how low volatility has come, and their likely paths both in the near-term and the long-term. The article linked above, cited research here on predicted glitches in a market melt-up. More recently in August we showed that the multi-year lows in volatility was something that would casually revert, and earlier in September we noted that volatility would unlikely immediately lead to volatility that rises to record high levels, as they do in legendary market crashes. But there was certainly room a fiery drop that makes a reduction in long positions warranted, even if that has to be held for a short while.
The former August article noted above was well-received as well, appearing at the top of Bloomberg's Ritholtz and the data-focused Quantocracy reading lists (plus others such as CFA and Robert's show on KSEV ), and altogether rising to be one of the chief articles ever on this blog. And as noted in the introductory paragraph the markets did plunge suddenly on Friday, making even longer-term short positions profitable as we have prophesied. Within the sectors of the market, it is interesting to note that some industries have had meaningfully depressed volatility within the recent market surge. Such as technology. While others have more or less sustained their regular volatility levels in recent months without ever cooling-off. Such as utilities. See all of the major sectors below, and appreciate the evolving volatility in recent years through August, by sector.
It is also worth noting that while the volatility hadn't fallen in utilities, it suffered a -3.8% change on Friday. Technology on the other hand had the deepest compression in volatility going into September, and yet it hurt much less on Friday, at -2.5%. In other words, even on Friday markets hadn't fully reverted for the recent years' excesses, as many may believe.
On an aside: In addition to now teaching at Columbia University Graduate School of Arts and Sciences, speaking at math conference over the next year. Further this academic site continues to grow and rapidly becoming the largest statistics site in the world. Passing above 30,000 followers across all media (and >15 million reads), including international and domestic governments, Nobel Laureates, hedge fund CEOs, and most recently personal luminaries such as legendary professors Nassim Taleb (NYU's black swan connoisseur) and Jeffrey Sonnenfeld (Yale business school's management guru and CNBC contributor).
We were cited in the most popular WSJ's MarketWatch article in late July, conveying confidence that the markets reached temporary peaks and volatility sitting on temporary lows. While markets could move slightly, they were unquestionably due for a correction as we head into the autumnal months. There was no reason to be long the markets given such risks, despite many Wall Street bulls pressing hard in the headlines assuaging any concerns about increased risk and eviscerating value, while jointly raising their price targets. Something mathematically imprudent to do as summer winds-down. Since the time of that article above, the S&P has only oscillated +0.5% daily through last Friday. That day everything changed as we said it must. Friday markets slammed to a level 3% below their all-time highs (-2.5% on Friday alone), and volatility spiked higher in one of the largest percent moves on record. This article explores some of the hints that were noticeable and admonished about for weeks now. And the research also explores the specific market sectors that have in recent years continued to bubble up, and to be aware that they have not fully made due last Friday.
In recent articles we describe how low volatility has come, and their likely paths both in the near-term and the long-term. The article linked above, cited research here on predicted glitches in a market melt-up. More recently in August we showed that the multi-year lows in volatility was something that would casually revert, and earlier in September we noted that volatility would unlikely immediately lead to volatility that rises to record high levels, as they do in legendary market crashes. But there was certainly room a fiery drop that makes a reduction in long positions warranted, even if that has to be held for a short while.
The former August article noted above was well-received as well, appearing at the top of Bloomberg's Ritholtz and the data-focused Quantocracy reading lists (plus others such as CFA and Robert's show on KSEV ), and altogether rising to be one of the chief articles ever on this blog. And as noted in the introductory paragraph the markets did plunge suddenly on Friday, making even longer-term short positions profitable as we have prophesied. Within the sectors of the market, it is interesting to note that some industries have had meaningfully depressed volatility within the recent market surge. Such as technology. While others have more or less sustained their regular volatility levels in recent months without ever cooling-off. Such as utilities. See all of the major sectors below, and appreciate the evolving volatility in recent years through August, by sector.
It is also worth noting that while the volatility hadn't fallen in utilities, it suffered a -3.8% change on Friday. Technology on the other hand had the deepest compression in volatility going into September, and yet it hurt much less on Friday, at -2.5%. In other words, even on Friday markets hadn't fully reverted for the recent years' excesses, as many may believe.
On an aside: In addition to now teaching at Columbia University Graduate School of Arts and Sciences, speaking at math conference over the next year. Further this academic site continues to grow and rapidly becoming the largest statistics site in the world. Passing above 30,000 followers across all media (and >15 million reads), including international and domestic governments, Nobel Laureates, hedge fund CEOs, and most recently personal luminaries such as legendary professors Nassim Taleb (NYU's black swan connoisseur) and Jeffrey Sonnenfeld (Yale business school's management guru and CNBC contributor).
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