Epic Volatility

“I can only say that, like any other millennial who lacks the weighted blanket of family money, I understand the world I came of age in as a sort of Luigi’s Mansion of institutional collapse and economic precariousness.” – Jia Tolentino, Will Write for Pasta

Unprecedented Volatility

There isn’t much else to say besides these months were the most volatile on record. It’s one thing to say it, and if you’ve been watching your portfolios you can probably feel it in a visceral way, but there’s nothing like squiggly lines on charts to show you how much of an outlier this time period has been for the financial markets.

Click through to see an animated gif via Dorsa Amir of unemployment claims to see the surge. The punchline of the chart: it needed a new x-axis.

Unemployment Surge

This chart from Nick Maggiulli shows the change in the Dow components for March versus historical peaks.

Dow Cumulative Change

And let’s not forget the VIX had the highest level recorded since it started in 1993, even beating the prior record during the Great Financial Recession (also from Nick Maggiulli):

VIX Record

All of these spikes are massive but what’s interesting is that multiple people warned how damaging this could be if appropriate action wasn’t taken as early as January. It wasn’t until the end of February that markets panicked.

2020.04 ACWI

It’s an interesting real-world example of efficient market hypothesis inaction (see that terrible pun there?). Adherents to the hypothesis would argue that markets reflected everything that was known at the time; what couldn’t have been known was the incredibly incompetent response to the outbreak. John Rekenthaler argued that investors didn’t have a recent enough historical parallel to know how to react.

However, people who have real money on the line probably are going to update their own mental models to take into account how devastating a pandemic can be to the modern global economy. They’re either going to boost their allocation to “safe” assets, increase their hunt for uncorrelated assets like farmland and timber that are relatively immune to pandemics, or they’re going to HODL and hope that the past continues to be prologue.

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